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Edited Transcript of GBF.DE earnings conference call or presentation 13-Feb-20 1:00pm GMT

Full Year 2019 Bilfinger SE Earnings Call and Capital Markets Day

Frankfurt am Main Feb 17, 2020 (Thomson StreetEvents) -- Edited Transcript of Bilfinger SE earnings conference call or presentation Thursday, February 13, 2020 at 1:00:00pm GMT

TEXT version of Transcript


Corporate Participants


* Bettina Schneider

Bilfinger SE - Head of IR

* Christina Johansson

Bilfinger SE - CFO & Member of the Executive Board

* Duncan Hall

Bilfinger SE - COO & Member of the Executive Board

* Thomas Blades

Bilfinger SE - Chairman of the Executive Board & CEO


Conference Call Participants


* Christian Korth

HSBC, Research Division - Analyst

* Craig Abbott

Kepler Cheuvreux, Research Division - Head of Mid and Small Cap Research, Germany

* Norbert Kretlow

Commerzbank AG, Research Division - Equity Analyst of Industrials




Bettina Schneider, Bilfinger SE - Head of IR [1]


Ladies and gentlemen, a warm welcome to all of you to our Capital Markets Day 2020. We have a live webcast so also greetings to you watching us via webcast. It is good to see you all, a lot of familiar faces. We're happy that you are accompanying us with our Bilfinger journey.

But before we start the presentations, some safety instructions. We are here located on the 21st floor, so there are 2 emergency exits here, left and right, to the podium. And then there are green arrows showing your way to the staircases. And please meet, in an emergency case, down on the ground level at the meeting point.

We have today with us our CEO, Mr. Tom Blades; our CFO, Mrs. Christina Johansson; and our COO, Duncan Hall. Shortly, we will start now with the presentation of the preliminary figures 2019 and the outlook 2020. Afterwards, we would like to give you an insight in -- to our plans for Strategy 2020+. So with this, I would like to hand over to Tom.


Thomas Blades, Bilfinger SE - Chairman of the Executive Board & CEO [2]


Okay. Thank you, Bettina. And also from me, a warm welcome. Good afternoon. As Bettina said, we're going to kick off with the obligatory looking backwards before going then forward into the Strategy 2020+.

So some of these slides are redundant. I think you know who we are, and you've seen this live so we'll skip that one. Introduction, so beginning with year-end 2019, 4 check marks, we made it. So I think people had some doubts during the middle of the year, even after Q3. I must say, it was a little bit nail biting, to some extent, but we made all of our targets. We delivered on our outlook, 6% organic growth, 6% last year, too. So 2 years in a row, 6%. Against a strategy of 5%, so a little bit ahead of plan in terms of the revenue. The EBITA, significant increase. So from EUR 65 million last year to EUR 104 million in this year. That's a 65% organic growth, again, checked the box.

Net profit, same as last year, except now there's a plus rather than the minus. So we're plus EUR 24 million. That's good because it's the first time since 2016 that we have turned a net profit, and of course, '16 was heavily influenced positively by the sale of Apleona. And the last of our key milestones there, free cash flow reported, so reported rather than adjusted at EUR 57 million. So again, checked the box. So we made, as I said, all of our commitments for 2019.

Looking a little bit further, the headlines, orders received, that's probably the only kind of mar more on the copy book. So we're 4% down on 2018. You've heard the story, we're going to repeat it several times, we're not worried, not at all. We can explain it. These are a couple of major orders and major really does mean major, which were moved from '19 into '20. So we're still feeling very confident on the top line, both order intakes and revenue, as you'll see in our planning going forward. As I said already, the full year revenue was good, 6% up. Q4, slightly down. Again, not concerned, to be honest. EBITA, tremendous improvement, we're at 2.4%. We would like to be have been a little bit higher. When I say like to have been, that's when we entered into this in 2017. But I think we made our plan, made our budget, and again, a great thank you to the Bilfinger team out there, hopefully, watching this as well.

And then finally, net profit, we had a real turbo close to the year as you can see there, EUR 15 million, so a total of EUR 24 million for the year.

If you look at our liquidity, again, reported free cash flow there at plus EUR 57 million. A lot of that was driven by working capital improvements, especially DSO. DSO is always one of those things where you have this year end push. Our challenge is get that more even through the year, which of course, will improve our liquidity. But also here, the guys and girls did a great job, 10 days down in Q4 and delivering then a solid reported positive free cash flow.

The balance sheet remains strong. You followed the recapitalization, the payback of the bond during the course of the year. And with that strong balance sheet, with the performance that we delivered, we are going to recommend a EUR 1 dividend per share, as we did in the prior years. That recommendation goes to the Board. And of course, the Board then puts it to the AGM in April. But again, we're feeling confident about our balance sheet, not only today but also forward and therefore, we maintain the EUR 1 dividend floor.

Our outlook for the coming year hasn't changed since the last time we talked about this at the end of Q3. Revenue will be relatively flat, maybe some upside. But flat because, again, we're living off the backlog, we see what's happening. As the backlog grows, we're feeling even more confident on 2021. But for now, we're forecasting steady revenue.

We are forecasting a substantial increase in the EBITA. So from the 2.4% that we achieved in 2019 to around about 4% in 2020, and then we will continue to grow going forward, but that's the next section.

Finally, likewise, that improved operating performance is not only reflected in EBITA, but also then in cash flow. Being fairly quick because I think you know the numbers, and I'm going to hand over to Christina to begin to walk us through the details.


Christina Johansson, Bilfinger SE - CFO & Member of the Executive Board [3]


Thank you, Tom. Also a warm welcome from my side. And I would like to present, first of all, 2019, a little bit more on 2020. Starting off then with the orders received, and the picture at the end of the year is fairly similar to what we have seen during the last quarters. In total, we are finalizing the order intake at the level of EUR 4159 million, which organically is 4% below what we had in a very, very good year 2018.

We clearly see that, especially in the segment Technologies, but also partly in E&M International, that we are a bit weaker than we planned and expected and wanted. But its major driver behind that is a number of projects that time-wise will go into 2020 for order intake. And I am also very happy to say that out of these few number, but large-size project, a couple of them have now been moving forward in January and February.

So one of these projects that we expected in the order intake last year is a project with a German subsidiary of BP, Ruhr Oel. And in this case, we have now been commissioned to do engineering, procurement and installation of pipes and pipes racks at their refinery in Gelsenkirchen. So this is size in above EUR 100 million order intake, and that we will see in quarter 1.

We will also hear more about Hinkley Point where we also, in quarter 1, now finally will have the first sizable order intake.

But obviously, these orders were missing in the closing of 2019. But looking then at the weakness in Technologies we will make up for in the first quarter 2020. In North America, it will still require a couple of months to pick up on this. I think this is not a concern for us looking forward.

Looking at the book-to-bill, we closed at 1 and looking at the order backlog, we here are closing organically 7% below the very strong level that we had when we started 2019.

Then proceeding to the revenue line. As Tom said, we managed to achieve an organic growth of 6%, even above our expectation in 2019, the second year in a row with this organic growth. We managed to take the EBITA adjusted up to the level of EUR 104 million from EUR 65 million in previous year. And we also had a similar number for the adjustment, EUR 72 million in 2018, also EUR 72 million in 2019, but brought the reported EBITA to EUR 32 million in 2019.

In this EUR 72 million of adjustments, the 2 major positions being the IT rollout, our system harmonization that we have been working on for a number of years, and we will finalize in quarter 1 2021. So we will also see a number here, and we'll show it later in the presentation, for adjustments on the system harmonization coming through in our guidance for 2020 and then a very small number in the first quarter of 2021. In addition to that, EUR 40 million of restructuring expense and after our announcement of the quarter 3, we obviously were increasing this number, so we now have also covered for the [sub 7], the latest restructuring program that we have initiated in last year. So all the cost for driving this SG&A program further down has been covered with provisions in 2019. Obviously, the cash out would, to a large extent, only follow in 2020. So EUR 40 million is that, and a bit more than EUR 30 million coming system harmonization.

Then looking at the 2 main drivers for the improvement that we have achieved but also above all the improvements that we intend to achieve in 2020 and 2021 to bring Bilfinger up to the sustainable EBITA. And I say deliberately, EBITA, not adjusted, not reported, one EBITA of 5% in 2021.

The first one being the gross margin, and I like to be transparent because I know that you see everything that we see. Looking at the gross margin developments over the last years, we achieved an improvement in the last quarter. So we closed the last quarter with 11.3%, a significant improvement versus the last quarter in 2018. But looking at the full year, we are only at 9.5%, so a small improvement versus 2018 which was 9.4%.

In this area, we see most of the improvement that needs to take place, and we also will hear, especially from Duncan later on, what we are going to do to bring this 9.5%, in the next coming 2 years, up to the level of 12%. You will also see later on that a big part of our business today is already at 12%, we just need to make sure that the remaining part of the business will improve to also make sure that we, in total, get to the 12%. So operating margin or gross margin improvement visible in quarter 4, but a big step-up required here in the next coming 2 years.

The second most important lever is then the SG&A ratio. Here, we have, over the last years, proven that we are able to reduce this. We have closed 2019 with a ratio of 8% versus the year before, 8.7%, starting off with above 10% in 2016. So year-by-year, a clear improvement and a good track record, and we will continue this journey with the restructuring program announced in autumn last year. We will bring this ratio now with a flat top line down to 7.5% in 2020, and then down to 7% in 2021. And then trying to target, even if we start to grow again, to stay below the 7%. So these 2, SG&A ratio and the operating margin, being the most important steps forward to make sure that we move on this journey from 2.4% to, hopefully, above 5%.

Looking at the 3 segments that we are reporting externally. First of all, the largest segment, which is Engineering and Maintenance, E&M Europe. Another year of a very sound performance throughout the year. This part also making sure that we, during this year of 2019, were able to make up for the downside that is visible in Technologies. So E&M Europe bringing more to the table than we originally expected to make sure that we are keeping the promise for the whole group.

Looking at orders received, slightly below. Organically, a decrease for the year of 5%. However, we have here also the effect that I mentioned, Hinkley Point. But also the BP project in Gelsenkirchen, that partly will bring a benefit to Technologies, but also E&M Europe units being involved. So with the strong order intake in quarter 1, we are not concerned about the workload in E&M Europe for 2020.

Book-to-bill still closing at 1. Revenue, an organic increase in 2019 of 2% to 3%. And EBITA adjusted, closed at EUR 101 million, which is in line with previous year, a 3.7% margin on EBITA adjusted.

So solid performance, continuous improvement, but we still see potential here for further growth. But also for further profit improvement. So for 2020, our guidance for E&M Europe is a fairly stable revenue development, but a significant positive development of EBITA adjusted. And that is, of course, a stronger focus on continuous improvement, but it's also the mix.

We have a large number of what we call in Bilfinger, turnarounds, larger revisions in the maintenance business. These are normally generating a very solid and good profitability, and we have increasingly, for the next coming 2 years, more and more turnarounds that also will pay back in the segment of E&M Europe.

I also would like to mention that leaving 2019, going into 2020, we have 4 legal entities in E&M Europe that we have strategically decided that they don't fit in our portfolio, and they will be transferred into the segment OOP from January 2020. That represents sales of approximately EUR 200 million and an EBITA adjusted of around EUR 5 million. The performance though, the EUR 5 million, that low in 2019, was hit with some onetime costs. So 4 legal entities moving on and having an impact of EUR 200 million sales less in 2020.

Moving on to the second part of E&M, E&M International, where North America is the larger part of this. In this part, we were extremely happy with the developments. We had a strong organic growth in sales revenue, organically increasing with 15%, thanks to U.S. and some very successful projects. We managed to get to an EBITA adjusted of EUR 42 million, so EUR 10 million more than in previous year, a ratio of 4.6%. So a very, very strong performance, especially in North America, in 2019.

And looking into 2020, given what I mentioned in regard of the order books, that North America, especially when it comes to the project business, has got some time delay here before the next larger project started. We are expecting that the top line that was achieved in 2019 will not be possible. So we will have a slight decrease in revenue due to the order book situation in North America. But we expect, nonetheless, an improvement in regard of the EBITA further, especially coming from the Middle East, continuous improvement but also a more favorable portfolio.

Last but not least, our problem child, Technologies, that we already, after quarter 1 last year, had quite in detail to explain what is happening. Segment Technologies, with 5 legal entities, have in 2019, had a difficult journey. 3 entities not generating poor performance, I stress that 3 entities were profitable and meeting the expectations for the year of 2019 even if we expect more growth and more profitability also from these 3 entities. But 2 legal entities being in focus, 1 hurting us badly in the first half and in the second half, the second entity.

This has been a difficult journey in Technologies. And I confess that we, after quarter 3, jointly still expected that the final result in Technologies would still be at least better than in 2018 where we had a loss of EUR 26 million. But some happenings on some of the projects, and also the need to take some additional provisions here to be cautious, we were forced to say minus EUR 28 million is the result of Technologies in 2019. So not satisfactory at all.

I think it is important to isolate these 2 entities, and I know that Duncan will also speak a bit more about what additional actions we have taken now to make sure that this story will not repeat in 2020. The first one, we started to stabilize in quarter 3 and 4 and actually had losses in quarter 3 and 4, but very small losses. The whole segment of Technology was, however, profitable in the last quarter of 2019, but it was less profitable than we had forecasted due to 1 legal entity and a couple of projects.

Now looking into 2020, and with this track record, it's difficult, I think, to convince you that a problem that we have now had for a number of years, we are really going to be able to turn around in 2020. We are expecting, not the least, also thanks to a very good order intake in January, a significant increase in revenue here, and a positive result for EBITA adjusted. And that goes back to turning these 2 remaining 2 legal entities around, and making sure that we at least get them to breakeven in 2020. But we're coming back more to some insight on the reasons behind it and also additional actions that we have taken.

Strong cash generation, especially in the last quarter. As Tom mentioned, between September and December, we reduced the DSO with 10 days. So very, very strong movement forward here. A pity that, that movement is not coming during the year. We have a track record here of being very, very strong also in the cash generation in the last quarter. What are we doing about that? We're actually changing our incentive system for 2020 so that we stop measuring cash flow only by the end of the year, and we will now measure it quarter-by-quarter to also make sure that we have the maximum effort earlier during the year to drive the cash flow.

Looking at the adjusted operating cash flow here. We are achieving a clear improvement for the year, EUR 181 million versus EUR 110 million in previous year, a strong positive step forward. However, it doesn't mean that we are happy with the cash generation. Also during the next coming years, we need here to make sure that we are moving forward and reducing the working capital, improving the EBITA to support the cash. But also making sure that these adjustments are not happening anymore, that we don't need further restructuring, that we don't need any kind of adjustments because that's also having an extreme impact on the cash flow generated.

You see the net trade asset, I don't need to talk about that. On the net profit side, you see the net profit, the swing from minus EUR 24 million in '18 to plus EUR 24 million in '19, and the adjusted net profit moving up from EUR 36 million to EUR 49 million. So also here, a very strong performance in the last quarter. Not good enough. We will continue to drive this topic.

Last but not least, the outlook for 2020, confirming what also Tom said before, and we already announced after quarter 3. We are expecting on the basis of our existing backlog and top line that is flat, so organically stable. We are expecting that the EBITA adjusted, will move up to around 4% in 2020, so a big step-up from 2.4%. And in regard of the free cash flow reported, our guidance is a significantly positive development. With that, I would like to pass on to Tom again.


Thomas Blades, Bilfinger SE - Chairman of the Executive Board & CEO [4]


Okay. Thank you. Thank you, Christina. We commented on our results as well, pleased, but not yet satisfied. I think again, when you look at the hit we took on T and the fact that we made our forecast, that shows you that we are robust. We are able to take some blows along the way and still deliver on our commitment, and I think that's really the message to take away going forward also, which are going to now.

We're going to move into the forward-looking part into the strategy, and I think the best place to start the strategy going forward is kind of where we began with the strategy in 2017, February 14, 2017, be precise. At that time, this is the picture we showed you, so no change. What is interesting is that the beginning of 2019, Christina, new onboard, said convince me the strategy still holds. So we actually had quite a few sessions early on in the year testing our assumptions. And bottom line is, yes, it does hold, we're going to show you why.

And at the time, we told you 2-4-6. So 2 segments, 4 regions, 6 key industries, and then the recipe to win through our people, customers, innovation, organization structures and delivering on the financials. That really hasn't changed.

We showed you at the time as well, the 3 horizons in the stabilization phase, that was 2017. We had 1 legacy project then that really took us down. We made a profit warning in Q2 of 2017. Since then, we've stabilized. And as I said, events such as happened in T, although they set us back, they don't knock us over. We still deliver to our commitments, and I think that's our mantra going forward. We deliver to our commitments.

We've gone through the stabilization phase. All of those lines have a check mark beside them. We did the same on the buildup phase. And now what's left ahead of us, with a little bit of delay but it's still ahead of us is the build-out phase. And the build-out phase, when I look at that, the first question you ask, well, what did you make in between? What did you miss? And just summarizing, we wanted to be, at the end of '19 where we committed to be at the end of '20, and this is, again, going back to our original February 14, 2017, Capital Market Day. We said we will grow the top line on the base of 2017 at a CAGR of 5%, okay?

You've seen we're growing at 6%, a little bit stronger than that. But again, give ourselves a check mark. That one we achieved, and I think we'll continue to do so going forward, after a pause on the order intake '19, converting into revenue in '20 for good reasons.

On the gross margin, we failed. Quite frankly, we failed. We said a 200 bps pickup, we're more or less at 0. There's a nice trend that Christina just showed you in Q4 and a smidgen of trend on '19 over '18. But we face it, we haven't delivered there. There have been headwinds against us, but we're not going to sit here and moan about the past. We're going to look forward, and that really is our major target, our major to-do, and we're going to explain to you how we're going to achieve that.

SG&A, well on the way. We said 300 basis points, so down from 10.5% to 7.5%. We closed the year around 8%, so we're 250 of the 300 are in the bag. And this year, we'll do the remainder. So we will make our 300 basis points reduction in SG&A, and we'll take it further from there. So again, check mark, we delivered.

On the target margins, we said the target margin for maintenance was 3% to 5.5%. We're there, we're at 4%. We will improve upon that. We're not sitting back and just saying, we delivered.

Likewise, Engineering & Technologies, we gave you at the time a target of 5% to 9%. We failed. We're at 0, even a little bit below 0. So if you break it down into the 5 companies, different story, but we're not complaining. We're just sharing with you our report card. And as Christina said, we are absolutely transparent on this.

Finally, on the free cash flow, again, check the box. We said, by '18 -- 2018, we'd be adjusted cash flow positive by 2019. Reported cash flow positive, check the box, EUR 57 million. We achieved it.

So what's left is to deliver on the remainder of our commitment. This is why we gave the strategy a little bit of a twist, we call it now 2020+. And early into the next plan period, being '20 through '24, we will hit the mark and we will deliver on our financial ambitions.

Going to go more into the forward mode, and to set the scenes, we have prepared a small film, just as an emotional stimulator. But I think it'll give you a little bit of a preview of what I'm going to talk about, and therefore, it's a good backdrop.

So with that, if we could show the film, please.



Thomas Blades, Bilfinger SE - Chairman of the Executive Board & CEO [5]


Okay. Time to move around a bit. We -- when we reviewed the strategy and decided it was the way to go forward, we spent some time looking on the global trends. And of course, everyone has these, but we focus on the ones that we felt were particularly applicable to us and that would change and drive our business going forward.

I think no surprise in the first one, aging assets, asset integrity. This is, I think, no surprise. If I go back to my early days in the North Sea, the assets I worked on then are alive today. They're written off, they're being extended. The same is on land. So companies are stretching their asset lifetimes. At the same time, they're stretching the assets themselves. They're trying to drive efficiency, they're driving emission reductions. All these are areas where Bilfinger can step in and help. At the same time, as these assets get older, like people, they of course, need more maintenance. So the maintenance costs continue to climb. And therefore, this is a prime focus of what we do.

What I described covers the asset base in Europe and in North America. If I go to the Middle East, the assets are more like teenagers. They're still young and strong. The customers pay a lot money for those assets, so they bought top quality. But those assets are being run by quantity rather than quality. And therefore, when they look at their benchmarking, they see they're not on the par, performance-wise, with other parts of the world. Therefore, again there, they're looking at people like Bilfinger to come in and begin to drive performance.

The second driver, ESG, climate change. I think the G part, governance, we've learned our lesson. We've gone through that, checked the box. Social, yes. But environmental, we have a role to play, we help our customers achieve their own goals.

So we deliver on reduction of CO2 limits, emissions and air pollutions, clean energy, distributed power generation, power to liquids. We were asked this morning, what is that? If a windmill is driving power generation, driving electrolysis to generate hydrogen, for example, that's what power to liquids is. Circular economy, converting waste into materials, into chemicals or converting waste into power. All of these are projects that we are engaged on today with our customers, helping them achieve their goals.

We also noticed that flow of finance is changing. People decide where to put their money, and ESG is a prime factor in deciding where that money goes. We like our customers to have money because then they can give some of that to us. And then finally, of course, is the Green Deal. You will see it coming later on this year from the EU. Again, it will play in this direction.

The third trend, and this is not something we make up to drive pricing, this is a fact. There is a skilled labor shortage. There's one in Europe, driven by demographics, so people getting older. Also driven by the younger generations' appeal to digitalization. They want to go work almost everywhere, except in plumbing or welding or in scaffolding. Now we're very fortunate that we have a good reputation, we can still attract these people. But it is a fact that in Germany, almost 1/3 of these typical skilled labor apprentices positions are empty.

In the U.S., it's a little bit different. It's not the fact that the people are getting older, it's because the demand is higher. And if you look at the U.S. and look at some of the headlines, you'll see that plumbers are being moved -- relocated across country. So a plumber that would would've grown up in the town where he was born, is now being paid tens of thousands of dollars to relocate to another part of the very large U.S. Again, shrinking unemployment is driving that, and that drives a craft labor shortage. We have that craft labor.

In the Middle East, I alluded to it, the asset part of our trend. In the Middle East, problems were solved by quantity. If you had a plant that wasn't performing, you threw another 100 people at it, it really wasn't expensive. That's changing. So as they begin to benchmark, look at performance and also begin to squeeze their assets, they're saying, we need to upgrade our people. And there, again, Bilfinger can help.

Finally, I think, again, no surprise, and I think none of these really are a surprise. But these are the ones that drive our business, it's all about data. And data is everywhere. Artificial intelligence, in terms of machine learning. That's beginning to have an impact. It's early, but it will have an impact. The machines will learn and replace the experts that we're losing. Predictive and prescriptive maintenance, we've described that already to you. Think virtual reality and augmented reality, combining the virtual world with the real world at the same time, 1 eye here, 1 eye there, and then being able to access machine learning to do a better job and drive performance at the plant.

We look at OEE, overall equipment efficiency. And again there, as people try to sweat their assets, as they try to squeeze out more from the existing plants, this is where digitalization plays a key role. Also if you understand your plant and can model the data and predict, it means you have a better handle on risk. And I think understanding risk around plants opens up new business models that, I think you'll hear from us a little bit later on the year, what exactly we mean by that.

So these are the 4 trends. And I think you'll agree, these trends all affect and drive aspects of our business. So what do we do with that? Well, there are 3 core capabilities we have that, we believe are needed to address those trends, and again, which make Bilfinger a little bit different from our competitors and position us well for growth.

So the first, of course, is our very strong skilled labor base. We are #1 in Europe, I'll show you some numbers. We have a leading reputation as a good employer. We invest in branding, employer branding, which means we actually go looking for the right recruits. Before, you could sit back and wait, now you have to go and look for them. We have an academy. So we not only get people, we train them, we invest in those people. That makes them stronger, better. And again, it's an attractive feature of Bilfinger as an employer. We have accreditation for our trade craft. We had, at the end of last year, 34,120 employees. Those are full-time employees. At any time, we can add thousands of part-time. We have a very large register of people that want to work only on projects and then go home again. So we have what's here, we have the skilled labor base.

We have domain expertise. Customers like working with us because we're engineers. So we can go into their plant, we can talk to them about processes. We can talk to them about where to drive efficiency, about debottlenecking plants. They like that interface, and this is also why we like the engineering reputation. Now we're struggling and fighting with it, we're not giving up. But I think, again, that's key to our makeup and our credentials vis-a-vis the customers. We focus on the same key industries, you know what they are. We're close to our customers, we're intimate with our customers. We collaborate. And I think the long-term contracts we have, they attest to that.

Our longest customers, 75 years they've been with Bilfinger. Our longest-term contract is currently running a 14-year contract, Equinor in Norway. And once we win a customer, we rarely lose them. And if we lose them, it's rarely, very, very rarely for quality or not achieving the cost reductions that we committed to. So our stick rate is more than 90%.

And something we can do that others cannot do is we can work across borders. So if there's a large turnaround in, let's say, Antwerp, we can mobilize hundreds of people from across Europe to that turnaround. When it finishes and there's a turnaround then in Schwechat, in Austria, we can move those people and add to them in Austria. We are cross-border, not everybody can do that. That makes us a little bit different.

And then finally, digitalization, we created Bilfinger Digital Next 2 years ago. It's a start-up, it's consuming money. We planned for that. We said we have a 3-year horizon to get to breakeven, they're on the way. But what we're realizing is, they're actually a very strong marketing weapon. They differentiate Bilfinger again from others. And Duncan will point to an example where we won a contract just very recently because we have this. Not because it's doing something wonderful, but because the customer says, you're innovative. You are forward thinking, we want to work with companies like Bilfinger.

And then we converged BMC, Bilfinger Maintenance Concept. This is our numerically driven approach to doing maintenance now augmented by digital towards digital BMC. Not only do we try to benefit the customer, we also want benefits from digitalization. And some of the shots you saw in the movie, they're around electronic workflow, where we drive internal efficiency. And if you're on a unit rate contract, you're paid a fixed sum for a pump or a motor. If you can lower your own cost by being more efficient, that's profit. And therefore, again, we use this internal to drive forward our margin expectations.

We also have AI. We have PIDGraph, which we've shown a few times. What is PIDGraph? These big, A3 size piece of paper that describe a process in the plant. P&ID, piping instrumentation diagrams, some of them handwritten changes on them. We can feed that into our PIDGraph machine, it reads it. It converts it into a process flow and puts that into a computer model. So we're able to archive old manual process flow charts, but also use that to build digital twins.

And then finally, as I said, when you understand risk and how a plant performs, and what the consequences of that risk may be, it opens up new models for you. And we're having discussions with a couple of people to see if we can use that to develop new partnerships for Bilfinger and take us into new business models. But not promising on that yet, it's work in progress. But it shows you there is more under the blanket than meets the eye.

So these 2 dimensions fit together, and we could put a lot of pictures on this chart. But I'll walk you through them. Fabric maintenance, North Sea, that hasn't changed. We're a lead in that. We're very numerical with our maintenance analysis. We build twins in order to drive digitalization and to do predictive and prescriptive maintenance.

In terms of ESG, climate change, we support our customers, help their -- help them reach their goals. The picture you see here is a circular economy where recycled plastic is being converted into a fuel which is augmented in the cracker feed in order to drive, again, circular economy. We do something similar with municipal solid waste, which is turned into sludge and then, again, goes through a pyrolysis system to generate power. These are still prototypes of drawing-board projects where we support our customer with their targets, their goals. Again, it shows you that we're, I think, a little bit ahead in doing things that some others would like to do.

Biomass-fired fuel stations, easy. Non-cellulosic ethanol, yes, doing that, too. There's a lot of stuff we're doing around ESG and climate change. Pollution, for many years, we've been doing this authorization in coal-fired power stations. You know the scrubber approach, I'm sure you're going to have a few questions on that later. But also, we use scrubbers in cement works. Just down the road here in Ennigerloh, we have a project where we're actually taking the sulfur out of the cement emissions. We're being contacted by many customers who are focusing on CO2. And last, but by no means least, we do a lot of work on water. The picture you see here is Thames Water. We're working with them on their efficiency drive in the U.K. But we also maintain and also operate partly desalination plants in Kuwait and in Saudi Arabia. So we are very present here. And as this develops, we think this will be a very strong driver. We have the answers. We have the people, we have the domain expertise, and we have the digital answers in order to put this together as a chain.

I mentioned this already, employer of choice. We have the right training and concepts. We can go a little bit further by making a job more interesting through augmented reality. We do cloud analytics, we have AI and we have no digital BCAP. I think we have the recipe in order to deliver on the kind of strategy that we're showing you here.

We then spent quite some time discussing the essential elements like the assumptions. Making a plan going forward is fine, but you need to make certain decisions. What are you assuming is going to be a constant through this '20 through 2024 period? And for us, and bear in mind, this is our organic plan, it's not talking about adding to the picture through acquisitions. This is the organic growth plan.

We still remain focused on the 3 key regions. Our house that I showed at the beginning is intact: Europe, North America, Middle East. Our industry focus remains the same: 6 industries, the top 3 generate 80% of our revenue. Digitization, we see as an enabling opportunity, not just per se, but enabling. Driving productivity internally and opening up new opportunities for partnerships and different business models as we get mature and show that we can really anticipate risk and predict events in plants. We're assuming that we will be entering a maintenance for a while yet. We're not defining which companies are inside of the technology part. I'm sure that's a question later on, too. But again, as I mentioned, there is a good overlap there, there is a credibility aspect to it, too. And we think that we can grow further in E&M, strengthen our strength.

The war for talent, blue collars, we do make a difference in the market. And we do believe that we will have to fight for good people through the entire 5-year period as do other people. But we think the cards are stacked in our favor. We think we have the right tools to do that, and therefore, this is something that we will continue to do well, I hope. That is, attract the right kind of people to deliver on our business model.

We then went into the imperatives, what are the essential must-haves we have to deliver. And I know margin, okay? But we also have some other factors, integrity in HSE. We learned the lessons made through mistakes in 2003, that was a hard loss in the DPA. It took us 5 years. I think this is the strongest, [anchored] culture element throughout Bilfinger. Talk to anybody in Bilfinger, all 34,120 people, they will recite to you our compliance rules. We will not compromise on integrity or on HSE.

People, attract, motivate, retain, develop. Unique service offering, we want to be able to offer our customers not just 1 service, but a number of services. We want to be innovative and we want to, over time, extend our portfolio.

We focus on the asset-light model. When we -- we're often asked about M&A, we have a vision of what M&A looks like, we could describe the animal to you. We couldn't put a name on it because we're not there yet. But what we can tell you is that it would be asset-light. We're focused on ROCE, so ROCE is one of our primary factors of success. And to drive ROCE, of course, not only being asset-light, but strict working capital management and very disciplined M&A criteria, which Christina will touch more on as we step through the presentation.

Margin growth, it's not just pushing for pricing. And of course, as there is a shortage of good people on the market, we've got to be able to push back on pricing. And a lot of our managers over the years have become a little bit soft and let themselves be rolled over by the customer. That's changed. It's changing.

I was very happy when the beginning of the year, we renewed a contract in Europe, and we told them, you're not renewing unless you increase the margin. At first, they were saying, are you serious? Customers always expect a deduction, a reduction. We said, yes, we're deadly serious. You don't get it, we will not renew the contract. And surprise, surprise, the customer renewed at a higher rate than before. We're going to drive that behavior throughout our organization because people are a shortage. We have them, we have good people. We will make a difference.

Likewise, project execution. You know my song and dance on that. We're not done yet, there's room for improvement, and again, we know where to apply that improvement in order to generate the margin pickup that we promised.

And then finally, portfolio rotation. Something I mentioned last year, not off the agenda. We will continue to look at that, taking out the low performing, but low-performing companies, replacing them with more interesting margins.

SG&A, not going to go into depth on that, we're on the way. And I think also important is our geographic footprint. We know what to do to grow our business in North America. We want to leverage our existing customers and market position. We want to push more into maintenance using what we have in Europe, but also now with digitalization approach. And likewise, in the Middle East, we've been in the Middle East a long time, more than 60 years. And if you look at our revenue base, it's -- about 80% is energy and utilities. Only about 20% is oil and gas, surprise. So biggest oil and gas market in the world, we can grow there.

We have our first contracts with Aramco. We mentioned that last year, the Berri Gas compression project. We've just won a great project in Ruwais in Abu Dhabi, working for a well-known customer there. Again, Duncan will touch on it. So it's working, we're on the way to driving our oil and gas profile up from where it was in the Middle East, and that's an essential part of our growth. Now it is a small part of our business. But nevertheless, it's growth, good growth and profitable growth.

When we sit down with most of you one-on-one or in other parts of the world, the first question that we're always asked by the analyst community is how do you see the market? What are your customers telling you? And the way that you ask us these questions, you expect us to come with a negative answer. I'm sorry, we don't have it yet.

Our markets are thus far robust. And if you look at our markets deeper, and I'm sure you do, you know them better than we do sometimes, they are long-cycle markets, yes. So when they do tip, when there is a recession, we see it coming very early. So our customers go through a longer cycle, we see it coming earlier. We have to react, of course, when that happens. It hasn't happened yet.

If we look at some of our main businesses, if you look at the chemical index, the petrochemical global index in the 5-year period, '20 through '24, it shows 5.5% CAGR. Now a lot of that is in the Far East, okay? So if you look at Europe, look at Middle East and North America, it's a little bit less than that. But it's growth nonetheless, that market continues to grow. And really, it's growing with population. People want to have more chemicals, textiles. Population growth is driving the petrochemical business, and it's not going to go down even with a blip in China as we're seeing today.

CapEx, OpEx around E&Ps, exploration-producing or oil and gas companies. People are saying, well, the oil price is down a couple of dollars, are you feeling it? If you look a little bit deeper again, and Total is a great example. Total is a major customer of ours across Europe, in Germany, in Leuna, in Antwerp. And Total, again, you know better than I do, last quarter, $7.2 billion of cash. That's 20% up on the same quarter 1 year before. So despite a $2 oil price reduction, they're driving more cash. They have their costs under control, they're driving productivity. They're generating cash, and that goes into asset-light extensions, making sure that maintenance is working. Our customers, for now, touch wood, are solid. Our industry is robust, and we're confident that we will generate revenue growth going forward for those reasons.

The old reasons, asset base, refineries are old, more than 20 years. If you look in Europe and North America, 60% of those refineries and assets more than 20 years old, they need us. Likewise, they keep adding new ones. It's not that the old ones are being torn down and new ones replacing them. No, the old ones are left, the new ones come in addition. And we see 45,000 assets in our space. And we see new projects. Even in Europe, which is a mature market, look at Borealis, look at INEOS, investing each a couple of billion in Antwerp again. We're in Antwerp, this is good for us.

Climate change, okay, you know the story better than I do. Again, I don't need to dwell on that one. But we're the ones that help our customers reach their climate ambitions. And again, today, I think it was on Bloomberg, Mr. Looney being interviewed, BP wants to be CO2-neutral by 2050. That's a tall order. Happy and waiting for the call.

So a few more credentials. We say we're #1 in Europe. We think the European E&M market is roughly EUR 25 billion per annum. If you look at where that money is spent, a large part is in the North Sea. A lot part of that is on the U.K. side, and that's why the single biggest market -- and we're looking at the size of the little factories here that my colleagues put together, you see the largest factory there. The largest market is in the U.K. That's driven by oil and gas. The largest land market, of course, is in Germany. And then so on and so forth. And you see our position. We're #2 in the U.K., we have some big peer groups in oil and gas. #1 in Europe, look at the Lunendonk Study year for year for year.

We're #2 in BeNe, Belgium, Netherlands, #1 in the Nordics, #1 in Poland, #1 in Austria and Switzerland. And we didn't just do that to make Christina happy, that's the fact.

So when you put it all together, we believe we are the #1 E&M company in Europe.

As I said, we're a people company. Bilfinger is a people company. We don't have factories or manufacturing in large scale. We do small modules. We're all about people. And therefore, our people are essentially the -- not only our most important asset, they're almost our only asset. And that's why we protect them, nurture them.

If you look at the numbers down here, bottom right, we ended up the year with 34,120, to be exact. That's down from 35,900 last year despite higher revenues. So we're driving productivity. But the main delta there, between the 35,900 and the 34,100 on my chart, is that we have been selling companies, including large manpower companies in Austria, for example. So we're focusing on efficiency. And again, if you look at the chart and look at the balance, we have a good mix of white collar and blue collar, again, driving our credentials, working with our customers. And the E part of E&M is engineering. The customer says, I need a modification, I need improvement. I need less emissions, can you engineer them? Can you implement them? And that's why the 2 go hand in hand.

What have we been doing to protect our most valuable resource? We've done a lot of things and continue to do so. So some of the more recent ones is focusing at the top end on management. And I shared some numbers with you last time. We have changed a lot of managers. Where change management doesn't work, we change management.

Critical entities, rightsizing. That's part of the technology story. It's one of the companies taking it down to the point where it's rightsized, but not too far. So it doesn't come its way up again as the orders come in, as they're doing that.

HRcules. We've invested a lot of money in SAP success factors that we call H-R-cules or HRcules.

We have the Bilfinger Academy.

We consolidate LEs because, I said it last year also, I think that 5x EUR 60 million is not as good as 1x EUR 300 million. A stronger management team, stronger delivery model and, of course, a more focused approach to the business.

And then finally, SG&A efficiency. It's not just about cutting heads, it's actually being more efficient. Checking off the boxes, empowering the people.

As we go forward, we have a very active skilled labor strategy. We're beginning to focus more and more on first-level leadership. These are foreman and shift leaders, and I'll show you why that's so important. Critical positions remain project managers for execution. But also here, this one, contract manager, in order to claim. Customers like to take advantage of you. If you're not prepared before you start the job, then you will be eaten for breakfast. And that's happened a few times. As you know, it's going to stop happening in the remainder of the company. Most of it is fixed.

Cross-border opportunities. I mentioned that we can move around. Others can't. Entrepreneurial empowerment, Duncan will dive into that one. And pay for performance. Christina mentioned a quarterly approach to cash management. In order to get away from this bathtub profile, we want to see 4 nice peaks through the year or ideally a flatline.

To show you some real numbers and some real evidence of what we're doing, this is from social media. This is the kind of thing we do out there to attract the right kind of people. Is it working? That's over here. So we've had 23,500 applicants since we went live with this, and live was at the latter part of Q2 last year. We've made offers to 1,900 of the 23,000. We are picky. We don't just take anybody. Picky is Christina's word. We've accepted 1,400 people into the company or rather they accepted to work for us is probably the better way to explain it. It's a 75% hit rate on what we select. And we have in the machine now 30,400 candidates that we can go to. So you see employer branding, it's critical. It's important, and it's part of our makeup. It's what drives a little bit our thinking going forward because this will not change in the next 5 years.

I think I mentioned some of these issues, wage arbitrage. We move people around Europe also for wage reasons. And they like that. It's motivational. Now the graph on the bottom left of the chart, interesting one. The first part, the 4 sites. This is where we actually went in and worked with the foremen, the people that have 4 or 5 people working for them building a scaffolding tower, for example.

We went in. We spent time with them. We talked about motivational principles, KPIs, morning briefings, performance targets. And after only a very short period of time, we saw a 30-plus percent increase in productivity. And then again, we went forward measuring that in terms of cubic meters per manhour. A 56% increase in the amount of scaffolding that people can manage. Once you begin to pay attention to the people, give them KPIs, treat them like managers, invest in them, amazing things happen.

I'm going to try to finish off with a little bit of where the revenue growth will come from. I've shown you why it will grow. I've shown you why our markets are intact, why we think we have the right recipe and resources to address the markets. Our model going forward will sustain 5% CAGR. We commit to that. We see that within our geographic horizon. The biggest growth on a smaller base, of course, will come here from North America, rolling out E&M, followed closely by technologies. I think you understand why. Middle East, 7%. And Europe, our largest base, grow a little bit slower. But we think here, this is a profitability challenge. This is a top line challenge. And all of that together adds up to the 5% CAGR.

We've broken it down also by industry, our 6 focus industries. This one sticks out. That's the Hinkley Point effect, okay? And it's also why then, in technologies, there's good growth. Hinkley Point coming in, turning from orders in 2020 into revenue in 2021.

So with that, I'm going to pause. I'm going to hand over to Duncan, and Duncan will dive a little bit deeper to give you examples that substantiate what I've been showing you.


Duncan Hall, Bilfinger SE - COO & Member of the Executive Board [6]


Thanks, Tom. Afternoon, everybody. I'm going to build upon the ideas that Tom put there, give you some insights into the key activities that we do within the business and demonstrate our confidence in delivering our targets. We know what they are, and we know how to deliver them. So we'll go through this.

First of all, before we would do anything, we talk about safety and integrity in our business. It's the core of what we do. It is our license to operate. And all of our employees who are watching this now, they know those values. There's a lot of similarities between managing safety and managing integrity. Strong governance, processes, systems. First and foremost, leadership. Tone from the top, walking the talk, no substitute for that. And our management know how to do this, and we do it day in, day out.

In safety, in 2019, we had a step-change year. We had 2 periods where we had 104 days without a lost time injury and 127 days without a lost time injury. A lost time injury is where you can't attend work the day after because you've hurt yourself.

Just to give you an idea what that means, give it some reality, 127 days is 40 million man hours. So that would mean you could work for 23,000 years and not hurt yourself. But more realistically, 23,000 of our people could work for 1 year and not hurt themselves badly. That is world-class. That's why you're seeing this in the green. This is a competitive advantage for us. This is why we win work. This is why we don't lose contracts because our customers need us to be safe.

And when it comes to integrity as well, great achievement this year. We signed off the DPA. An enormous amount of work by everybody in the business to achieve this. And we achieved the sign-off. So a great milestone for us. But the key to it now on both safety and integrity is, this is now part of our DNA. It's part of our operational behaviors. It now drives throughout the business day in, day out. It doesn't have to be driven every day by people in different places. It is part of what we do.

But also, what's another part of what we do? We grow and make money. That's core to our business as well. And if we don't do that, then we're failing. And we are going to grow, and we are going to increase margins. The targets are very clear. 5% compound annual growth rate on revenue, 2% increase in our bottom line gross margin. We've made good progress, but we still have some challenges. We know that. Part of this on the top line is winning work at the right price and then delivering it to those prices or better.

When it comes to our margin challenges, we actually have 2 distinct challenges here. We have incremental gains in our engineering and maintenance business. It's stable. Tom has already talked about that. We'll show that again later. So that's incremental management, continuous improvement. But then we have to complete the turnaround within technologies. And we'll visit that again and give you a bit of an insight on some of the things that are happening through that.

So I want to take you through some of these examples of how we're doing it, some real-life ones, bring it to life a little bit and show you this. I will start by how we reduce complexity in the operations at the start of the year. So at the start of 2020, we changed the operating model, made it more compact, less layers. So now the operating units report directly in to the COO/CFO. More compact, enabling faster decision-making, empowerment into the businesses. A greater focus externally, less internal bureaucracy. Streamlined reporting. Really got to move that forward quickly without losing the core governance that we have that we've learned about, but also less approval requirements, approving what -- the projects that have the risks, not just that have the value.

But we can't just do that, we've also got to make sure we continue to improve and actually accelerate that improvement. As you've seen, we haven't been doing it quick enough. So this is part of the change as well, to introduce what we call the Global Excellence team. And this team drives growth, and it drives margin improvement, alongside the daily operations. So this is a team of in-house experts that will ensure in every region there's clarity on the targets and clarity on the actions to grow and increase margin. Because that's tough when you're delivering every day. So you always need to be pulled back. Remember, this is what we're going to do. It's not pretty. It's not that sexy. It's just hard work.

So let's have a look at some of these areas that we do. Let's have a look at global development. And it's about the future. It's about securing the future. Yet, it doesn't happen dramatically quickly. I'll show you some examples, though, soon of where we've won work, and we're on the journey, and the value is to come. So we're in progress here. Part of the key area here on growth facilitating is we bring our companies together. We have a great portfolio of services, and we have a great network where we work. We bring these companies together to provide services to customers that reduce the interfaces. So they have to do less, and we do more. And that provides value to the customers, and it provides us both with additional value. We get better margin, they get lower cost.

Also, we'll talk about digital, and we'll get into a little bit more detail there, where now is the time to deliver on our digital portfolio. We're bringing it into our core offering so that, again, we can drive efficiency, not just for the customer side, also for our internal side. We'll show some examples of where we've won that.

So let's look quickly at that digital landscape and what does it actually mean about bringing together both sides of this. So it's our digital expertise and our domain experience. I'm not going to go down all of them. You'll probably be pleased to hear. Just going to talk about a nice simple example, which is industrial tube.

It's a great example of where we use the latest technology to make, I still call them videos, make a video. Put it online, people could learn from them, you can have your glasses out on site, and it takes you through how to repair something. And that's been a key tool we've been selling to customers. But it's a key tool in engaging our workforce and improving their skills and improving what they do. And by bringing that in now, alongside what we do on every contract, we're exposing this to lots of customers who now see it, want it, use it. And you can go down all of these lists, whether it's the BMC, the maintenance concept analytics, where we're able to predict the work more, and not just for the customers, for ourselves as well. Gives us both of these benefits.

And when we start looking at the examples of the where we've used these, and this isn't theory, this is now a reality. The one in the middle there is the best example we've seen so far of where this is -- you can see the values. This is a significant contract, major contract won. One key differentiator: our digital vision. That's not us saying it, that's the customer telling us, this is why you got it.

Do you see revenue in Digital Next for that? No, you don't. Do you see revenue in the U.K. business for it? Yes, you do. Have we got a pathway to improve the efficiency on that, that contract for the customer and for us? Yes, we have.

And all of these, as we go through them, you'll see, the value is to come. None of these were in the past. Not going to show you a single example that's in the past. All value to come.

Christina talked about the contract with BP and very politely also pronounced where it is for me. I'm not going to go there. So this is one of the orders that was delayed from last year into this year. It was secured, signed up January 15. Significant value. Lower double -- triple digit millions, I believe, is the sort of phrase that we use. And this was won because we came up with a concept. Two companies from Bilfinger, technologies business and the upstream business, coming together with a concept, a modular concept for manufacturing and installation. Why?

Reduces the cost. We can do it very efficiently off-site 180-pipe bridges, longer than these room -- this room. 25 kilometers of pipe within them, all manufactured off-site. Trucked to the site, lifted in piece after piece after piece. Minimizes the amount of site work, which is more hazardous and more expensive. And we did that in collaboration with our customer. This wasn't a tender. This was an idea that we built together, went through the design process together. And then we produced a price together. That's by far the best way of getting work, working with our customers.

Another area here. Again, won't go -- Tom talked about it very briefly, in Ruwais, our first major maintenance contract in the Middle East. Fantastic. A great job by the people out there to win this. And we won 2 lots here. No other contracts won 2. We won 2. First major contract. Why would they give us 2? Customer coverage. The major shareholder of that particular asset worked with us all across Europe, has confidence in Bilfinger, knows us. And that's why we were able to do that. First contract. There will be more to come.

Been waiting for this piece, a bit of a project called Hinkley Point. So we've been talking about this for a long time. We're a strategic supplier to Hinkley Point. We've been receiving orders throughout 2019. Progress has been maintained. Yes, we've got lots of work going on. We've got engineers on the ground. We're accelerating it. When will we get the big orders?

We got 1 yesterday. Contract. First big order. EUR 68 million was signed yesterday. You'll see it in the press next week. Can't be released because EDF are having their results day tomorrow and don't wish us to do that. They've kindly allowed us to voice that here. So that's the first one.

The next big one, which will be the NSSS, where we're already the strategic supplier, that will happen, give ourselves a bit of leeway, half 1. But it will happen in half 1. Contracts are well drafted. Everything is agreed. That's underway. We'll win more work on there, not as sizable as that. But we'll win more work, probably above the estimates that we have here.

So we're on the ground. Our resources are increasing. We're a key partner to EDF. And we have the first major contract.

Let's talk then about, after we win work at the right price, how do we make more money out of it. And it's these differing areas. So first of all, talk about how do we do incremental margin improvement. Deliver the year. Always been the mantra, deliver the year. I just want to pick up on a couple of areas here.

Operational KPIs. It's an area we have to do more in to enable us to look forward more, to change what will happen rather than react to what has happened. Whether that's in utilization or efficiency of our people, we need to be able to plan better how we use them. And this is a key part of what we need to do.

An area as well, Tom briefly touched on it, about performance culture. Got examples of both of these to come. And this is about not only the attitude of people, but it's about training them as well in lean processes. How do you drive waste out of the businesses? How do you analyze? How do you look at these things properly? And also, really importantly, rewarding them for success. I get my fun and kicks being in this business by being successful. That's the enjoyment. And lots of other people do as well. And we want to reward them for that, and they want to be successful, and they have the ambition and drive to do that.

So let's look at a couple of examples. I'm not going to go through all of these. Let's look at KPIs in action. So Tom already referred to it very kindly.

In Antwerp, this is Total refinery. And actually, the business that operates here is one of our best industrial services businesses that we have. By far, one of our best. But we had a contract there who was not delivering on margins or delivering satisfaction for the customer, and we weren't happy either, obviously. So we went in, identified the problem, admitted to ourselves we need to improve. Started measuring KPIs, down to the basic levels, the daily output. How much are we putting up per hour? How much are we getting back per euro and per person? What's the waste? Real detailed waste analysis. Where are we losing time? And start mapping that out.

And then when you have those measurements, you can start to standardize the processes of how do you get the logistics right in the morning, how do you get the materials to the right place. We start work at -- I do this wrong with people quite a few times. We start work at 7:30 in the morning, 7:00 in the morning. It could be a horrible day, it could be a beautiful day. You've got to get to site. You've got to put your overalls on. You've got to get your toolbox too. You've got to get out there. You've got to have your safety briefing. You've got to get put to work. Boom, and you're ready to work. That takes 15 minutes. Now you've got 15 minutes to get 2 tonnes of scaffold over there. You can't do it. So you've got to do it the night before. And these are the logistics. And the challenge is that not also how do we manage our people, how do we get the customer to manage their process to enable us to do that. Otherwise, we're always going to fight a losing battle. So it's that pushback, working together, customer collaboration.

Why do we do that? 35% improvement? Fantastic. Took us up to a level we can cope with. More importantly, customer gave us 2 contracts. They saw what we did. They saw how we work together. Turnaround this year is happening on that site. Just won a 3-year extendable by 2-year maintenance contract. Same site. That's how you win work with customers, make your performance better, make their performance better.

Last one of the examples is about performance culture. If you remember, a few years back, we had the slump in the oil price. Really went down in terms of spend within the North Sea. Lots of margin pressures. Yes, and we had to cut prices to keep work, we had to cut prices to win work. And you can't carry on like that. So how do you get back? You have to increase your efficiency. And this can't just come from a few people at the top thinking how to do it. It's got to come from everybody in the business. So this business set off. It was the BTOP program, started this, kicked off, and right from the bottom-up came up with some great ideas. And I'll just talk about a couple of them.

One of them, quite a high level. We had our own in-house training school, used to train our people within that. And it was great work. Well, when you've got less people, less work, you've got underutilization. You've got fixed assets. You're not using them whatever. So what did we do?

We put a group of people together, competitors and customers, outsourced our training school. And now that trains people in the industry. No longer a potential underutilization for us and of huge value to the business. Saves us about EUR 500,000 a year. A nice big example and also makes us more agile. If we take out those underutilization impacts, we are more agile.

The other example, one of my favorites. This is bottom-up. We had suggestions came -- suggestion came in. We have transient workers. So they might come in 5, 6, 10 weeks in a year, very simple statement. Why do we give guys who come in for the summer a standard pack -- standard start pack? Because it contains a winter coat. As simple as this. We're having people working all summer, and we give them a winter coat, and they take it home and put it in their garage. And this is one of the lads who experienced this. It saves us GBP 3,000 a year. It's not about how much it saves, it's the attitude that everybody was getting involved. How can we make this business better? And they succeeded. They put 1.9% back on the margin, back on the EBIT line in a very tough environment. And these guys are #1 in industrial services, in the U.K. side of the North Sea.

Let's talk about Technologies. So we briefly referenced. It's 5 businesses. Three of those businesses are good businesses. They're growing. They're above our average profit. Good, sound businesses. We are in good, high-value markets as we go forward. We've got 2 that are still challenges. One of them out of the old power units. It's taken longer than we thought to do that. It's been through restructuring. What have we now recently done?

We've, at the end of last year, made the decision to exit what is called the performance -- conventional power performance market. So this has produced, over the last few years, a number of the legacy projects that we've had and also some of the difficulties, so where we've been taking performance risk for steam and things like that. We've exited. People will be leaving the business. No longer doing that. It's too high risk. And there's not the levels of reward the other side. So that business will concentrate on the nuclear market. And you've heard that. Hinkley Point coming through. The nuclear market is profitable for them. Yes, Hinkley Point will keep us going, and then there'll be other ones after that.

The emissions control market, which isn't just the maritime scrubbers. It is also what we do in the cement. It is also general sulfur dioxide control. Yes. So again, we have agility in that market to deploy our resources into other places as those markets change, and they do, as everything does. And also where we are continuing to do industrial work, we are partnering that business with other Bilfinger businesses. The BP contract referenced before use the technology skills, but with a great delivery team from within Bilfinger to support as well. Minimize, reduce, eliminate the risks.

The other one then is a family-owned business based in France, probably not too difficult to isolate which one it is. And that's had some troubles. The family left, a lot of management left there, and it left us with some real problems. It left us with a poor order book and processing systems that weren't up to the task. So we've had to rebuild this. We've got new management in, started it earlier, next year, they're cleaning it up. Processes and systems are getting in place. We're trading at the low order book, and we're gaining control. Here again, there's a small piece of that business that we've exited the market.

There, the local petrochemical market is just cutthroat cost-plus, where it's not worth winning work in that. And that business now, 3 business lines: nuclear, again; pharmaceutical; and for them, LNG gas. And all of those, again, high-value, high-margin businesses. So we're making changes in portfolio, reducing our risk, but we still have to trade out some of these poor margin contracts that we have. And that will happen in 2020, that we trade it out in 2020.

But the last one around that, and I'm not going to, again, go through every single item on this. So where did we start? Where are we now within technologies? There's been a lot of changes. On the delivery piece, we have changed people. We've changed the leadership at divisional level. So a new Executive President and a new Finance Director. We changed leadership in the 2 businesses that are struggling. We're bringing in partnerships to help with the delivery end. And we're strengthening our front-end to make sure we estimate properly. Proper stage-gate processes to make sure we have the right prices and then the right processes to deliver. Sounds easy. It's tough. We're getting there. Less mistakes, more ambition, more confidence coming back in those businesses.

And then when it comes to weak margins, we're exiting those problem sectors. We're exiting those areas. Stay in 3 high-value sectors, yes, with growth potential: nuclear, pharma, emissions control and a bit of gas within France.

So where does that leave us now? I'll slowly take you through this. So here is our gross margin achievement. This is what we do. This is right now. And we show here, these are our activities: engineering, industrial services, installation, scaffold painting, maintenance work, multiservice, construction. And here's our target line for gross margin. And you can see, 85% of our revenues on, around or above our target margin. This is where incremental margin improvement works. Under control, low volatility on the margins, you can build. We keep contracts, you can grow. Very hard to grow when you're losing contracts. We keep them.

So this area, solid. Careful, don't trip over. In the auxiliary area, talked about it, there's 2 types of businesses in here. There's some that we tried to make work. We brought them back to okay margin performance, but they're not going to get any better, and they're probably best being with another owner. So we've moved them into our OP. And we'll look at making sure we can get the best price we can for them.

There's others that still remain here. Margins are slightly low, but they have a place because, actually, customers need these services. And we need to change how we sell them and start to link these up with some other areas of the business. Otherwise, some of these areas won't be able to win work, insulation being a particular challenge in there. And making money in insulation, you link it up in the full cycle within the scaffold areas as well and painting.

Then we have Technologies. The margin potential is still there, and we see it. We just get dragged back by the challenges that we have and failures that we have. And we've got to reduce those and eliminate those. We have the people in place to do that. We have the processes in place to do that. There'll still be the occasional stumble, but we're well on our way to doing this. So very, very briefly, that's why I'm confident, these guys are confident. We've got the actions in place, get the gross margin to 12%. And then we'll see where we go after that. 2% on the gross margin by 2021, and then we move on.

Okay. Over to Christina for some financials.


Christina Johansson, Bilfinger SE - CFO & Member of the Executive Board [7]


So I'm sure you are almost grounded after 1.5 hours. But we tried, especially Tom talking about our key markets, oil and gas, chemical and petrochemical, utilities and energy. How they are developing, what they will require going forward. Also trying to tell you how we see our role being in Europe, the market leader in what we are doing, and the opportunities to also adjust our portfolio to even better meet the requirements and the needs of our clients. And then of course, Duncan talking about how we are very committed, very prepared to make sure that we deliver the year 2020 and secure profit and growth beyond 2020.

So where will this journey then lead us? And our planning period is, of course, beyond 2020. It's '21 to '24, even if we are digging deeper in 2020. And then we have target setting, ambitions and plans for the next coming years.

So looking at the financials going forward. Our ambition, our plans are built, as I said before, closing the last 2 years with an organic growth of 6%. Now expecting a flat top line for 2020. And then from 2021 to 2024, we are committed to deliver a 5% organic growth every year, year-on-year. That will take us as Bilfinger organically above the EUR 5 billion revenue line. On the EBITA side, closing at 2.4% in 2019, now guiding and being committed to deliver a big step up to 4% in 2020 and then 5% from 2021. And you see here a commitment that we will be in line with 5% and then above the 5%. Looking at numbers, we will exceed the EUR 250 million EBITA.

You also see down at the bottom end the EBITA reported. And here, you see that we are, from quarter 1, convinced and committed to deliver 1 EBITA. So we will have smaller amount, and I come back to that, of adjustments also in 2020, and then phasing out in the first quarter of 2021. So leaving the adjusted in the reported world to 1 real EBITA.

On the free cash flow reported, we see the EUR 57 million that I mentioned for 2019 and taking this year-by-year up to above EUR 200 million in 2024. This is our commitment. This is what we are working hard on, and this is what is motivating and driving us to really keep our promise, not only for the last 2 years, but also going forward.

Looking at the 2 main drivers. We have spoken a lot about the need to improve our gross margin that we closed at 9.5% in 2019. And in the next coming 2 years, we are taking up to 12%. Thereafter, even above 12%. How do we do that? We do that with a more solid execution, more commercially driven, but a better contract management. From the beginning, setting the scene so that we are making sure that the contracts are set up in such a way that we will generate more and better margins. But also making sure that claim management, which is an essential part of project management, on a continuous basis, actively is driving us forward.

But also what was mentioned, being what I say a bit picky in good markets with good growth that we are making sure that we are driving for the right contracts and that we sometimes also have the strength to say, no, thank you, if some of the contracts are not offering the opportunities to get up to the 12% even if we do our utmost.

Utilization in a people's business is essential. Also working harder and making sure, not only due to our seasonality, but also, in general, that we have solid, better, stronger utilization rates.

On the SG&A ratio, continue to build on the success that we have delivered, getting this number from 8% last year down to 7.5% this year and then to 7% or even below in this planning period.

And how do we do that? We continue to do it in the same way as we have done so far. We try to be more efficient in the organization to be leaner. We try to continue to reduce the number of legal entities because that will take out complexity and improve efficiency, economy of scale in a lot of the SG&A areas. But also making sure that the system harmonization with the same joint IT support will be finalized, and that we utilize that joint platform more and more efficient. This we have done, this we continue to do.

Looking at the special items, and I'm picking out the 2 main items here. I said to you that in 2019, we spent -- we had EUR 40 million for restructuring and a bit more than EUR 30 million for the IT or system harmonization. Looking now at what is left to come on adjustments. What is left to come on P&L?

It's EUR 30 million. We are expecting that we will have a little bit of restructuring, as you always have, in a transformation, but much smaller amounts in 2020. And then we will have the finalization of the rollout of ERP, our SAP platform, also then having an impact on 2020 and a small part, EUR 5 million in '21. So these are the adjustments we are expecting in the next coming 2 years, phasing out. There is, as always, a certain delay in the cash effect. So as I said, we provided and took the P&L effect of the restructuring in 2019. Most of the cash effect we will only see in 2020 as we implement our plans. So this is our commitment in regard of adjustments, and then from quarter 2 2021, single real EBITA.

SG&A efficiency, I mentioned the continuous drive to reduce the number of legal entities to reduce complexity and lower the overheads. You see here on our track record, we had 279 legal entities in 2016. We closed last year with 160, and we are confident with what we are doing right now that we will get below 150 by the end of this year.

Right now we are merging entities in U.S. We're merging entities in the Netherlands, trying to drive for less complexity. But of course, also, if you have larger entities, you will also have more skilled people. You can afford to have more professional people focusing on different tasks.

Looking at the system harmonization, we finalized the HR platform, the project that we call HRcules last year. So the rollout was finalized in December 2019. We are well underway for also the ERP, the SAP implementation. We have decided, based on our experience in the rollout, to expand the scope. Regionally, 66% of our total revenue was foreseen for SAP. We have now expanded that with 28%. So when we have finalized the rollout, we cover 94% of our revenue with the SAP joint platform, which is helping also the integration.

It is helping us to work together. We had a number of projects, Hinkley Point, BP, Gelsenkirchen, where companies from different Bilfinger countries are working together. Having the same system platform is making it so much easier and so much more efficient.

Looking at the rollout here, we have done 70% by the end of 2019. We are planning to have 90% of it done by the end of this year. So also here, proceeding in accordance with our plan, and last but not least, in regard of the system harmonization, it is extremely important for the transparency to make sure that you really talk about the same things. You have the same definitions. Talking about this entity in technologies that hurt us so badly in the first half of last year, only when SAP was implemented, we got full transparency of the projects. So not only efficiency and cost saving, it's also about transparency.

Looking then at our, what I call, bread and butter, our E&M, our engineering and maintenance segment. And these numbers you see in the reporting, we are simply adding up the segment E&M International and E&M Europe. That brings together almost EUR 3.7 billion of our sales. Here, we are convinced that we will continue to grow. So from 2021, we will see 5% organic growth in our bread and butter E&M business going forward.

Looking at the profitability today. If you add up the results here, you will see that we last year were around 4% EBITA adjusted in E&M. And this, we are obviously then taking up above 5% until 2024. But of course, this journey will go faster, so the 5% will kick in here during the next coming 2 years. I think in E&M, it will not even require that we get to the end of 2021 before we see the stable, sustainable 5%. This is very much what we are good at, and we need to strengthen our strengths.

Working capital management, a story that never comes to an end. If someone working on this is taking more than 2 weeks of holiday, I see the traces. That's the hard thing. Working capital for us today is a bit different than it used to be because the old Bilfinger was having a very good working capital, thanks to very, very high prepayments from the construction business. That's over. The amount of prepayments in our business is actually year-on-year because the clients are more conscious about cash reduced. But nonetheless, we are trying to use the opportunity for prepayments in projects wherever we can.

Accounts receivable. We have very solid clients. When they get the invoice, they normally pay on time. We can't complain that we are losing money on bad payers or on companies that are not surviving. So the main area for further improvement here is the work in progress. That is generating 32 days of the 74. And how can we improve that further going forward? Awareness. Cash has also got a price tag. So all the projects, they do not need just to pass the profitability. They also need to pass the liquidity and the cash planning.

Looking at contract and claim management. That should be a fundamental, important part of our business and of project business, in general. We have recently started to employ more and more people specialized on contract and claim management to give this more focus. That will help us to reduce the WIP, to set the contract in a different way, but also to drive the claims during the project and not only at the end of the project. We also look, of course, at any possibility to improve our payments term in the contract area. And of course, the clients do the same, but their awareness that cash is also with a price tag. That's something that we have been driving this culture, and we continue to drive.

Of course, on the DPO side, we see the 69 days that we, I think, quite healthy, achieved by the end of December. That is a number that we also continuously need to get up. I don't want to say how far we can get it because that depends also on the amount of large projects that we have. But by making more and more procurement together, increasing the bundling, but also work on the rates here, I'm sure that we will also be able to improve our track record on the DPO side.

And as also mentioned, our SDI system has been adjusted this year to not only measure the performance at the end of the year, but to measure it on a quarterly basis.

Looking at our financial model. We want to be, and we are, a low-risk business with a recurring business, with a strong focus on Europe and a diversified customer base. We have a number of large customers, but we are not depending on 1 or 2.

So this is our profile. We are representing a sustainable revenue growth. Back to the 5% organic growth, again, from 2021 and, obviously, the last years with even 6% organic growth per year.

Starting to look at bolt-on acquisitions because -- not only because of having the funds, but also having the stability in the company to successfully be able to integrate any kind of bolt-on acquisitions.

We want to achieve industry-leading margins. So the 12% gross margin, the 7% or even below 7% of SG&A ratio. These are industry-leading margins. And a strong cash generation, a very asset-light model. In 2019, we had a net CapEx of -- as low as EUR 50 million. So also a strong awareness how we spend the Capex, a strict working capital management, a high free cash flow that then can be utilized for dividends or bolt-on acquisitions. This is our financial model.

Looking at capital allocation priorities. On one hand side, we have a situation where Bilfinger is rated by S&P at BB with a stable outlook, but we are clearly committed and are working hard over the next coming years to get Bilfinger back to an investment-grade. That requires that we are fulfilling the criteria, and I have listed some of them here. And if you look at 2019, we are not yet meeting these criteria. If we are achieving what we have set as our target for 2020, we will be there, but it will take a little bit longer because it has to be a sustainable track record to bring us back to investment-grade. But next time, when we go for refinancing, we want to have an investment-grade to also get a more attractive interest rate when we are going through the next funding.

We have a clear dividend policy. During the last years and also for 2019, we are suggesting the floor dividend of EUR 1 to give something to our shareholders in the transformation. But we are committed to then continue from 2020 with a 40% to 60% of adjusted net profit.

Making sure that the fact that we will have some cash will not send us out on a shopping tour, making things that will not make sense. We have very strict M&A criteria for those targets that we are looking at. EBITA accretive 1 year after integration. ROCE exceeds WACC 2 years after integration. Asset-light with focus on ROCE. As Tom said, an immediate start of integration when acquired. Very strict criteria, not always easy to fulfill. But based on being a conservative Swiss CFO, I think this will make sure that any acquisitions that we make will be successful. We have learned our lesson from what Bilfinger did 10 or 15 years ago, and we should.

Focused in the M&A strategy. Of course, we have started a bit more actively to look at this as we also believe that we now are stable enough to have a clearer look at what would make sense. Bolt-on M&A priorities would be core geographics where we see that a combination of an acquisition and organic growth would bring us much faster ahead. But also core industry where we, as a potential new owner, see clearly strong synergies that would justify that we would make an acquisition. And I also would have a close look at the margin. It doesn't mean that these companies have to be at 12%, but we need to know exactly how we within 12, 15 months can bring these targets to a 12% or even beyond 12% operating margin.

Sources of funds. Beyond our own ability to improve our cash generation is, of course, the fact that we have the 49% investment in Apleona, where the market and rumors are saying that EQT will try to sell that. And we know that we have a balance sheet position of EUR 240 million. By the way, the same amount as we have shown previously, so we did not adjust in the last 2 quarters anything. EUR 240 million, which we regard to be a conservative number, if EQT would trigger in sale and Apleona would be sold.

So these are the funds. Our own ability, spending less on working capital, improving the profitability, spending less on adjustments. And then, to some extent, if the money from Apleona is coming in, these will be sources of funds that could be used for a justifiable M&A. Of course, could be used, but I also try to convince that we're not going to spend the money for the sake of having the money. We will have very, very strong criteria before we are going ahead and making further acquisitions. But we are convinced in the management team that there are acquisitions that really would bring a strong additional value also for Bilfinger and also to the shareholders.

With that, I would like to get back to Tom to summarize.


Thomas Blades, Bilfinger SE - Chairman of the Executive Board & CEO [8]


Thank you, Christina. This will be quick because you've seen it already. 2, 4, 6 lives. So we stick by our guidance. Our strategy is working. You've seen the assumptions behind it. And for those of you that are very eagle-eyed, you see that we did give a little twist here in the middle. So rather than 4 regions, we have 4 business units: Europe, North America, Middle East and Technologies. Also, our recipe to win: people, assets of our customers and data.

We shared with you our view of the world. So our global trends, the ones that we think are applicable to Bilfinger. We shared with you our key competencies that we use to answer these trends. And with that, our assumptions and, even more important, our imperatives. And these together make our strategy going forward, 2020+, effective 2020 through to 2024.

We shared with you a lot of data and facts. These are not made up. These are real numbers, and we evidenced that with many examples, especially from Duncan's section. We showed you, Bilfinger is a people company, and I think the message on margins is quite clear. This is our biggest focus going forward, and it's why we are going to deliver on our commitments and on our targets. So I would say we're going to be predictable, reliable and sustainable. It's not a one-off effect, it's a continuing sustainable effect. And again, those are the numbers that Christina showed you.

When we do that, then this is what it yields. So again, you've seen the numbers in the various parts of Christina's section. 5% CAGR will take us over the EUR 5 billion organic in 2024. We are going to have a baseline minimum EBITA reported of 5%. Why do we call it a minimum baseline? While we see businesses will fluctuate with cycles, we're not immune, we see them coming a little bit earlier. We have more time to get ready. And if we can exceed the 12%, remain under the 7%, you do the math. We're a little bit above 5%, and we leave that leeway for good times and maybe not so good times. But that is the minimum threshold we want to achieve going forward in a sustainable sense.

The ROCE focus, we talked about. That will yield significant cash flows. How we use them, again, opportunity-driven, and what happens at the time. But important is, of course, if we do all that, we want to be investment-grade, so BB+, and we want to be known as a reliable company that delivers on dividends in the range of 40% to 60% of adjusted net profit.

So with that, the last slide, the obligatory slide. We create. We care. We can. And we make what we showed you. We make it work. Thank you.


Christina Johansson, Bilfinger SE - CFO & Member of the Executive Board [9]


Okay. Thank you very much, Tom.


Questions and Answers


Christina Johansson, Bilfinger SE - CFO & Member of the Executive Board [1]


I'll start now our Q&A session. Please raise your hand if you have a question. We start with Norbert Kretlow, Commerzbank.


Norbert Kretlow, Commerzbank AG, Research Division - Equity Analyst of Industrials [2]


Ladies and gentlemen, I had a question on the blows unit, which impacted the 2019, and in particular, Q4 2019. Maybe can you somewhat more quantify the losses in the projects, which you indicated? And well, it looks a little odd that all of these projects, material projects -- problems materialized in 2019. Do they have anything in common? Is there anything structural, which is a problem?

And then during the presentation, I clearly received the impression that the rollout of SAP in the group might be a major contributor to solving these problems and ruling out further major project losses going forward. Can you confirm that? And if not, what would be your action to avoid this.

And then I had one additional question regarding the pricing environment. You mentioned that you pushed a client for higher margins. And I wonder is this really -- does this mean that the project has a higher margin? Or does this mean that input cost headwinds are compensated?

And then as a follow-up, do we have to think about your efforts to increase your pricing as an industry-wide trend? Or is this something which is rather specific for Bilfinger?


Thomas Blades, Bilfinger SE - Chairman of the Executive Board & CEO [3]


Okay. Thank you for the questions. Maybe I think, Christina, you're best positioned to answer the first 2, and then Duncan yourself. Christina, do you want to try to catch the impact on Q4 of the losses, if we're able to quantify that? And then, of course, how we're going to fix that going forward by having stronger SAP systems in place.


Christina Johansson, Bilfinger SE - CFO & Member of the Executive Board [4]


Okay. Looking at quarter 4, in Technologies, we have to say that it was actually the first quarter since Technology was created, that they had a positive result. So yes, we had specifically 1 project in the last quarter, and that came as a surprise where we were in a situation on this project where we tried to find a settlement with a client. But the client decided to proceed to arbitration. And we are not expecting that anything in the view has changed in regard of how we see the claims that we have and the claims that the client has got. But given that the client took the step and went to arbitration, we had to put some money aside for the cost of an arbitration case.

We are still hopeful that this arbitration case will not take place, that we will be able to find a settlement. But given the short time frame, before Christmas, we were forced to put some millions aside here for an expected arbitration case. So that's the main reason that we, in the last quarter, had a number that was lower than our expectation and, obviously, also then slightly worse than what we had 1 year before. But the last quarter of 2019, Technologies was actually positive otherwise.

Looking at the SAP rollout. Yes, I am a big fan of having standardized systems, sharing definitions and policy. It is so much easier than to move from one entity to another and speak the same kind of language. I think the entity that was giving us a hard time in the first quarter -- it's not a surprise by now that the entity is in France, that history was actually started off only at the end of '18 after we, in '18, had rolled out and implemented SAP. It was not possible deliberately or nondeliberately to hide the truth anymore. So I think for the transparency, for the consistency, a joint platform, if it is SAP or another system, that helps a lot to make sure that we also have full control and integration.


Duncan Hall, Bilfinger SE - COO & Member of the Executive Board [5]


Thanks, Christina. I'll talk about pricing. So this is a maintenance contract that Tom referred to specifically, not an isolated one-off project, and we'd had this contract for quite a number of years. And as we -- sometimes over that, you get margin erosion through negotiations, especially when you're coming from tough environments. We have the opportunity here where the customer wanted to continue that trend. We obviously didn't.

And we prove to him 2 things. One is the market position, so around where wage inflation is going. But more importantly, the efficiencies and benefits we've brought to that site over the previous years. So there was a level of understanding and transparency we needed to bring to him that his overall cost was not increasing. If you want to just look at the price of a person, it is going to go up by inflation, and we don't have a lot of control about people cost at times. So we made that clear. We went through it. It was a good discussion, a positive discussion, and everybody understood at the end of it, where we're going to go.

And now on that contract, we have annual increments in place, annual escalation as part of our core areas that we've implemented annual escalations on contracts. This is the market, if I move now on to the wider market position, it's a bit more realistic on those sorts of areas now. With the labor shortages that we have, the realism about ensuring that not only that you can have the right company doing it, but also that you can attract the right labor with the right rates because it's a combination. There is a war out there for good employees to attract with good employment rates as well. So we're seeing more realistic key resources getting booked up.

The biggest area we see this in is turnarounds. We're seeing companies because we have a great process on turnarounds, our Bilfinger turnaround concept, where we train our people. We get them out there to deliver the high risk as in shutdown periods and the highest risk our customers have when they're not on production, and they need to get back on time. Otherwise, they have to buy product in. Yet, we are reliable on delivering those on time. So they want our key resources back year-on-year. And we've recently had a customer book us up for 5 years, the next 5 years of turnarounds.


Christina Johansson, Bilfinger SE - CFO & Member of the Executive Board [6]


Okay. Next question from Christian Korth, HSBC.


Christian Korth, HSBC, Research Division - Analyst [7]


The first one would be if you could please elaborate a little bit more on the Hinkley Point project with regards to revenue recognition, when could that kick in and when could we see the full impact for the first time?

The second one would be if you could give us any statements of use on Apleona and also why you did not adjust the value of the business to some extent. Does that indicate anything on the underlying business? Or is it just a precautionary measure?

And the last one would be if you could please update us on the scrubbers situation with regards to maybe the number of vessels and the total order size and maybe also the current capacity and maybe production volume in January 2020.


Thomas Blades, Bilfinger SE - Chairman of the Executive Board & CEO [8]


Duncan, maybe on Hinkley Point, and then I -- maybe I would add a comment or 2 at the end of that.


Duncan Hall, Bilfinger SE - COO & Member of the Executive Board [9]


I'm very happy to talk about Hinkley Point. A positive, positive progress here. We won't have the challenges with revenue recognition. The contract is largely a time and materials contracts with target costs and incentives come on top of that. Yes, it's a good contract. So we'll be able to take revenue as it comes in as we process from day 1.

Our -- when is that revenue going to come? It hasn't changed. The project is still on time. It's never been delayed. I know our orders have drifted, but that's just due to the priorities that EDF had with other people. Yet, we still got smaller orders, and we kept on having that. And we've had revenue coming in, in 2019.

2020, we'll have revenue significantly increased over 2019, but still in the very low double-digit millions. 2021, we'll start to see significant revenues where we'll start ordering significant materials and fabricating a significant amount of pipe. And then towards the back end of 2021, early '22, the site resources will ramp up significantly.


Thomas Blades, Bilfinger SE - Chairman of the Executive Board & CEO [10]


If I can add to that and maybe address a little bit the credibility question that was recently post in a letter that was sent to us on Hinkley Point, having done some due diligence on that, et cetera.

I was in Hinkley Point for the last time -- last week on the 5th of February. And my discussions with EDF were that things were on track. We would be awarded the NSSS. That's the big order that we've talked about for quite a while.

We put that order in the EUR 250 million, plus/minus, range, and that is coming. And that wasn't different when I was with the head of the project last week in Bristol on February 5. The order that Duncan mentioned today is not part of that EUR 250 million, okay? So that gives you a feeling for the kind of scope and the confidence the customer has in us. And again, as Duncan said, we're on track to deliver or to receive from the customer that order for another EUR 250 million somewhere in H1. I say that because, as I said, I was with the customer last week in Bristol, Hinkley Point, and therefore, have a high level of confidence on that order. Those are the effects.

With that, Christina, Apleona?


Christina Johansson, Bilfinger SE - CFO & Member of the Executive Board [11]


In regard of Apleona, I have to make it clear that our role, keeping the 49% investment is -- we are a financial investor. We are not involved neither in running the Apleona business nor are we involved in selling Apleona. It's a clear-cut between our role and the role of EQT. We have not received any new updated planning years from Apleona.

On the basis of what I have, and also, especially in the light of the fact that EQT itself disclosed that their 51% that they have has not changed in value during the last 6 months. We decided to keep the same value. I think it is a cautious approach, and I want it to continue to be a cautious approach. We are still confident that the value of that shareholding is higher than EUR 240 million, but I don't think it's the right approach to start to speculate what the right value would be in case of an exit.

So on the basis of EQT's own treatment of their part, we decided not to adjust the value because you haven't got any underlying changes in what we have received. So that's the reason why we keep the same valuation, and we have only adjusted for EUR 3 million, EUR 4 million during the year on the basis of the numbers we have received.


Thomas Blades, Bilfinger SE - Chairman of the Executive Board & CEO [12]


On the scrubbers, again, very interesting market dynamic. As we went into 2019, we actually expected a continuous pickup in demand going through the year as did our peers, our competitors, and we all saw a pullback in, not in demand, but in realization of demand. And when we try to sit back and analyze that, it does appear that the first wave of scrubbers went to cruise ships, cruise lines. People concerned about the air of the passengers.

The second wave, in parallel, went to the VLCC charterers because they knew that their customers, in turn, would look for vessels that had scrubbers installed. There then came a lull, and that lull was or is the actual owner operators of ships. And they're kind of sitting back and waiting to see how serious are the authorities about policing this. I mean they can always fill with low sulfur fuel oil currently at a delta of roughly $250 per tonne. That's a high premium to pay today. But if you are concerned about the police or the marines coming and checking, then you can get over a short-term bridge, and that's happening. So I think if the authorities really do what they say police and channel this, then we think the latter part of the wave -- it was a limited wave, the latter part of the wave, will come somewhere towards the end of 2020.

Now today, we have roughly 110 scrubbers. That's cumulative. We have facilities that can deliver between 15 and 20 scrubbers a month. Those are in Germany. They're in Vietnam and in China. We can also back it up from our manufacturing in Austria. So we're confident we can meet demand, but the demand hasn't quite developed the way that we expected it.

Likewise, when you say if you're not meeting the demand, you have overcapacity. The manufacturing we have is outsourced. So there, we're not feeling any pinch. The good news is that the engineers that shrank down the technology to take it from coal-fired power stations into funnels then develop the application work for ships and marine, these are the same engineers we use on other emission projects. So I mentioned [any go low] down the road for Heidelberg Cement, desulfurization. We're using them on DeNOx projects. So these are valuable people with good experience, and they're not in high supply.

So although, again, scrubbers are not quite where we thought they would be, we see a potential pickup. We're not concerned because we have good people and we have a good cost base for manufacturing where we're not stuck with fixed cost if there's a variation in order intake.


Christina Johansson, Bilfinger SE - CFO & Member of the Executive Board [13]


Next question from Craig Abbott, Kepler Cheuvreux.


Craig Abbott, Kepler Cheuvreux, Research Division - Head of Mid and Small Cap Research, Germany [14]


I'm still just -- excuse me. Is this on? Okay. Just still trying to understand a little bit more clearly the bridge for the turnaround in earnings in Technologies. I don't expect exact figures, of course. But if you could give us a bit more clarity on what the drag -- i.e., what would the earnings roughly have been on EBITA level if we eliminate these 2 problem units?

And, yes, just so we can get a feel for what -- where the underlying profitability is and what the bridge is for when those 2 units hopefully turnaround over the next 12 to 18 months.


Christina Johansson, Bilfinger SE - CFO & Member of the Executive Board [15]


We are obviously not disclosing the results of individual entities, legal entities. But what we can say, and if you listen to what was previously said, in Technologies, we have 5 legal entities, 3 of them are profit-making. So that means that the loss of EUR 28 million that the segment generated was a lower loss than the 2 painful legal entities created.

So the turnaround, if we turn these 2 legal entities around to breakeven, which is not good enough, but probably, I would say, a fair target for 2020, you will gain something above the EUR 28 million. I hope that helps you.

Is there any further question? [Ms. Yhep], SEB.


Unidentified Analyst, [16]


I have a question related there, and there's also a question for predictability now and doing -- the restructures next year will be about EUR 25 million. And then I suppose that these 2 entities, the turnaround, restructuring costs are included in that.


Christina Johansson, Bilfinger SE - CFO & Member of the Executive Board [17]


In regard of these 2 legal entities, one -- the first one in France is not requiring any restructuring, neither 2019 and 2020. To be honest, there were quite a lot of people that left that company, so that solved the problem also of restructuring.

The second entity, we have taken decisions in 2019 to restructure one department, and that will happen in 2020. But the provisions, the cost for that we're taking in 2019. So we will have the cash out in 2020, but the pain in the P&L was taken in adjustments in 2019.

I've seen somebody raising his hand. Okay. Craig Abbott, Kepler Cheuvreux.


Craig Abbott, Kepler Cheuvreux, Research Division - Head of Mid and Small Cap Research, Germany [18]


Yes. Just coming back to the scrubbers issue, I just -- because about 1.5 years ago at CMD in June, that was clearly presented as being one of the key elements of the organic growth. And I know you've given us the chart with a number of indications of where that 5% organic growth, how should be comprised. And you've given us a little bit of an update just now on the situation in scrubbers. But how significant is a pickup in those orders for you to meet your revenue growth target?


Thomas Blades, Bilfinger SE - Chairman of the Executive Board & CEO [19]


We're not relying on that. So we've taken a very conservative approach. I think we're known for being conservative for all the right reasons. And therefore, if the additional orders don't materialize this year, there isn't going to be a major impact. If they do come, that's nice. We'll smile and take that, of course, but we're very careful in our planning. And again, you look back on 2019 and what we underdelivered in T, we were able to mitigate elsewhere through actually really hard work.

So there is a way to compensate the shortfalls. It is hard work. It's not that we're sandbagging and bunkering. People are flat out, but we do deliver targets. We stick to our targets, and we do that by being just a little bit more careful than we would, if things were in full swing, and we cleared out all of the issues.

Now having said that, I'm not covering up for expecting a lot more issues. But just to, again, make the point, we are conservative. We like to deliver on what we promise. And of course, what we promised today is to continue to grow that bottom line for all the reasons that I showed.


Christina Johansson, Bilfinger SE - CFO & Member of the Executive Board [20]


Any further questions right now? Okay. Okay. With this, we conclude today's conference. Thank you, everybody, very much for coming over. And we would highly appreciate if you would join us for a small get-together in the back of the room and get into the relaxed atmosphere. Thank you very much, and good afternoon.