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Edited Transcript of GBF.DE earnings conference call or presentation 13-Nov-19 1:00pm GMT

Q3 2019 Bilfinger SE Earnings Call

Mannheim Nov 30, 2019 (Thomson StreetEvents) -- Edited Transcript of Bilfinger SE earnings conference call or presentation Wednesday, November 13, 2019 at 1:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Bettina Schneider

Bilfinger SE - Head of IR

* Christina Johansson

Bilfinger SE - CFO & Member of the Executive Board

* Thomas Blades

Bilfinger SE - Chairman of the Executive Board & CEO

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Conference Call Participants

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* 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

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Presentation

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

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Good afternoon, and welcome to our third quarter 2019 conference call. Thank you for dialing in. I'm joined today by Christina Johansson, our CFO and Tom Blades, our CEO. We will now start with the presentations followed by the question-and-answer session.

With this, I'll turn the call over to Tom.

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

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Okay. Thank you, Bettina, and good afternoon, ladies and gentlemen. If you're following on the screen, I think the headlines, no surprise, we're delivering what we said. If you saw on the top line, we view our markets -- underlying markets and particularly E&M as being stable. I think you see that in order intake, we do have some timing issues on the projects and products. We're not nervous. We have enough in the pipeline. We have enough on the radar screen. And therefore, we continue as per our expectations, as per our strategy. The revenue is growing. Again, no surprise, I think, the backlog gave us a heads up on that. And as far as the next 3 lines are concerned, EBIT, net profit and free cash are all significantly up on the same quarter last year, they are outpacing the revenue, and they will continue to accelerate towards the end of the year for us to make our targets.

We have announced further productivity savings, additional cost savings that we've identified. We believe these will exceed EUR 40 million in total by 2021. We expect to see about EUR 30 million additional cost savings in 2020. And with that, we do reaffirm our 2019 outlook. And we do announce significant EBITA improvement expectations in 2020.

Going briefly to the market, beginning with E&M Europe. So one second. Yes. Thank you. So brief market overview in terms of Engineering and Maintenance Europe, Oil & Gas is for us, of course, predominantly North Sea. $62 per barrel means that our customers are generating cash. That will continue. It's good for us. We do see a good call for our maintenance services. We don't see a flattening. And we are able to be a little bit, as Christina would say, picky on certain contracts that don't meet our margin expectations.

Both in Oil & Gas and in Chemicals and Petrochem, we see strong demand for turnaround projects. I will come back to that in more detail later. I think Energy and Utilities is no surprise there. Nuclear does remain in focus for all the obvious reasons, but different parts of the lifecycle. In France, it's again, refurbishing, there's one new build, Flamanville, which you are aware of and in the U.K., it's all around Hinkley Point, and Finland Olkiluoto. But again there, I think you've seen our announcement regarding Hinkley Point, we're confident that will come. And happy to answer more detailed questions in the question-and-answer session later on.

Turning the page to E&M International. Oil & Gas in the Middle East continues. Installations are aging. We are winning contracts. And you'll see an announcement very briefly for a new contract -- for new customer in the Middle East.

In the U.S., especially in the midstream market, pace has slowed somewhat, doesn't mean there isn't any. It's a huge market and [trial] units remain in favor to take the shale gas into downstream chem and petrochem. In Chem and Petrochem itself, the focus is on OpEx optimization, so efficiency and productivity. We do see some quite large projects on the horizon in petrochem for both Texas and Louisiana.

And then flip the page to our markets for technologies or our products and projects. In Oil & Gas, I think if we look at the landscape, we don't see a lot of capacity build up. We do see debottlenecking. So driving efficiency. And we have a role to play there. Likewise, Energy and Utilities, I think nothing surprising there. Nuclear as I mentioned before, we are involved in decommissioning and projects in Germany. And we are seeing increased request for information on our nuclear waste compaction technology.

Pharma and biopharma continues. I think that's -- sorry, that will continue to grow as we go forward. And with that, I will go to a couple of extra slides to give you some more granularity on some of the headlines I mentioned. Beginning with the margin improvements through SG&A and through what we call leaner processes or management streamline. I think when we shared our strategy with you in early 2017, we gave you the 3 horizons, stabilization, build up and buildout. One of the things we grappled with early on was risk management, recognizing risk, managing risk in the contracts, modeling risk and then of course, executing through flawless projects, where we're still not quite there, but we've made a lot of progress. Likewise, we were dealing with the compliance challenges, we've got a very large compliance team. And also in that time I think I mentioned at one of the meetings that about 30% of our average time in the headquarters was going into compliance.

Now we're 3 years down the road, our systems are in place. We've exited the DPA just under a year ago. And we feel it's time now to, let's say, slim down a little bit headquarters, and to move more entrepreneurial and, let's say, profit ownership into the operating entities. For that reason, we've announced some major cost savings, a large part of which will impact the headquarters. We've also announced the elimination of the E&M divisions in Europe. So that's one management level less. And the restructuring, as I mentioned before, will yield about EUR 40 million, a little bit more, in savings, which we will ramp up to that run rate in 2021. And we'll see about EUR 30 million -- again, a little more than EUR 30 million of savings coming through to our 2020 bottom line. When we do that, we're effectively entering the third phase of our strategy, what we call the buildout phase. And one of the important elements there is the performance culture. So being for a long time top-down driven or let's say a strategic operator, I think we also mentioned in 2017, we'd like to move towards a strategic architect. And that's really what we're doing now.

So again, it's no surprise, we announced it quite a while ago, now it's time to act. And with that we would then push the performance culture into the operating or customer-facing entities. Not to say they weren't doing it before, but now we're just putting more decision making into their hands. We're streamlining decision making. We're improving the levels of authority and letting the people run their business with their customers. We think it's the right thing to do.

On the next page is something which I highlight quite often when I'm asked what keeps you awake at night. It's really when I look down the road, 3 years, 5 years down the road, there will be a shortage of craft labor.

In Germany, we see it today. We measure it on the number of apprentice jobs that are advertised in the market yet go unfilled because there aren't enough people applying for these jobs. I think you see the same in the U.S. and that's the graphic on the left, the Christmas tree on its side. It shows the inversion of supply and demand on the craft labor market. On the right, you see the bar chart, which is, as I mentioned, the unfilled apprentice jobs in Germany. If you look at hourly wages for plumbers, electricians, they're all climbing. If you look at the time it takes to actually call for a plumber to come to your house, it takes even longer. So I think wherever you look, it's quite clear that the supply/demand equation is turning. And that there will be a war for talent going forward. Of course it also drives our business because when customers have a large craft workforce, which is aging along with their plants, then they're looking for solutions other than just more of the same. And again, that speaks towards what Bilfinger does. We have the people. We have the training competencies, we have the certification competencies, and we have the workforce that really thrive in this kind of environment. And that's why although it's a concern, we think we have the right answers to address that.

I mentioned turnarounds across Europe as being part of our growth curve going forward. We have been growing in turnarounds. We're well positioned to do that because we're already inside most of these facilities. We have the trust of the customer. And then when it comes to a shutdown, which needs impeccable planning, it needs a ramp up of several hundred people at short notice, but with long-term planning, then we think we have what it takes to do that. We have been doing it. I think the graph shows you. 60 turnarounds in 2018, in fact more than 60, more than 70 this year. And that will rise to more than 80 next year. The names in the box show you that these are all larger customers. So again, customers whose trust we've earned. And we're able to do these things. We're able to act cross border, which many of our competitors cannot do. I think you've also seen that next year the Forties Pipeline will go down in the North Sea for a period of time. That has a knock-on effect for turnaround on land where facilities were closed. They tried to, of course, improve and debottleneck those plants and then bring them up again in a short period of time. That's one of our strengths. It's one of the things that's driving our margins. And it's something that I just wanted to highlight as we go forward. I'm looking towards taking your questions later on, but first of course, we have the numbers and so that I would pass over to Christina.

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

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Thank you very much, Tom. Also from my side, I warmly welcome to our quarter 3 presentation. Let's just have a closer look at the financial performance of quarter 3, starting off with the order intake on Page 10.

Orders received in the area of engineering and maintenance are very stable. Technologies with significant decrease versus last year are mainly then related to the timing of certain larger projects, and especially then in U.K., and Hinkley Point as mentioned by Tom. Looking at the pure numbers, we are closing quarter 3 with an order intake of EUR 997 million versus a comparable number last year of EUR 1.1 billion. It's a reduction organically 7%. But as mentioned, we don't see any weakening in the market. It's mainly related to the larger projects here, if you compare the bulk. And here, we just have a timing issue on a number of projects in U.K. but also in U.S.

Book-to-bill ratio is now down to 0.9. And looking at -- and also comparing with last year, I think we need to keep mind that last year was a very, very strong order intake throughout the year. Last year, we had order books when we closed the year that were 12% above the year before. And even if we are expecting a step up in the order books for the last quarter, it will be very challenging to achieve the same numbers we had last year. It would actually require an order intake in the last quarter above EUR 1.3 billion. And even if we are successful on a number of these large projects to also get them in the last quarter, it's a very demanding number. But we will do -- continue to do our best.

And looking at, for example, Hinkley Point, I think it is also important to notice that even if the order intake will only come in, in 2020, it will not have a significant impact on the work load and the phase next year because most of that work will start to kick in and generate sales 1 year later.

Proceeding then to the revenue line on Page #11. Here we are, of course, benefiting from the solid -- with very strong order books. From last year, we continue to be above the level of 2018. We generated EUR 1.1 billion of sales, which is an organic growth of 7%. Looking at the full year picture and our expectation for 2019, we are expecting that we will not be staying at 7%, but we will be somewhere between 5% and 6% organic growth for the full year.

Then the EBITA adjusted, it improved to 3.1% for the quarter or EUR 34 million, a strong step up versus the last quarter, but also versus quarter 3 last year, where we closed quarter 3 last year with 2.1% or EUR 22 million.

Special items. We generated special item cost of EUR 9 million in the quarter 3, most of that related to our ongoing rollout of SAP and also an HR software. So quite a modest number, but we continue with these rollout. And you will feel in the adjustment, also cost coming up in quarter 4 and also going into 2020. We are planning that this process will be finalized by the end of 2020, early 2021.

In the adjustments, it's also important to mention that the restructuring cost or what we have announced today, the further action items in SG&A, that will generate a onetime restructuring cost of approximately EUR 40 million that we obviously then will try to a large extent to get into quarter 4 this year. As long as the IFRS will allow for it, we will try to take as much as we can of the restructuring cost in quarter 4 this year. And the number that we right now are looking at is around EUR 40 million.

Results, EBITA reported, quarter 3 is reaching EUR 25 million to be compared with EUR 11 million in quarter 3 last year. So also here a clear improvement. Proceeding then to Page 12. We have on the left-hand side, the development of our gross margin. Here you see an improvement to 10.2% in quarter 3. A clear improvement versus last quarter, but also versus quarter 3 last year. So good development, however, not yet at a satisfactory level. So this is also a key target for quarter 4, but above all, also for 2020 to continue to make sure that we gain a substantial improvement on the gross margin.

SG&A, on the rate -- right-hand side in this quarter going down thanks to a couple of onetime positive effects going down to only 7.6%. It was an especially good quarter. Also here to set the perspective of the full year forecast in the right light, we are expecting here that we will close this year for the full year with a ratio of 8.2%. But still a significant improvement this year, which also means if we compare with last year full year 8.7%, that we have a number of SG&A projects at all levels already ongoing and also built into our total saving that we announced that we are expecting to achieve with the latest activities.

The target this year to bring this ratio down to 7.5% in 2020. And even being able to do this with a stable revenue line next year. And then to continue to drive the SG&A overhead further down with a target of getting down to below EUR 300 million by 2021. Proceeding then to our 3 segments, starting off with E&M Europe. Very sound, very good performance, very stable. Looking at the orders received, we have orders received that are organically about 2% below last year. At the same time, however, here we know that a number of framework agreements will be renewed and entered to the order books in quarter 4. So very solid performance, and we will achieve also the orders received targets in this segment for next year.

Looking at the revenue line, stability. We are in line with quarter 3 last year. Organic growth plus 1%. And looking at the EBITA, also here we are talking about EBITA margin of 4.7%, in this segment, we have a fairly strong seasonality. So quarter 2 and quarter 3, quarter 4 being the stronger ones. And you see here 4.7% in quarter 3, in line with what we also had last year. So a very, very solid situation. I want to mention the development is very positive in the North Sea on the offshore business, but also as mentioned by Tom, we are very, very successful in regard of turnaround activities in our European market, good volumes, good profitability. And that will continue also next year.

Proceeding then to E&M International, including North America and Middle East. Here we have a bit of a mixed picture. We have on one hand side orders received that are organically minus 3%, however, here, we have the effect of a number of large projects in the pipeline in North America with the timing aspect. So it's the large project portfolio that is lacking a bit time-wise behind, but we're also are confident that we would be able to pick up going forward in the next quarter.

On the revenue side, we have a very, very strong improvement, 20% organic improvement, if we compare it with quarter 3 last year, and that is related to North America and especially one large very successful project, generated substantially more sales and profit on this project than what we have seen before. So very good development. Also here, we are expecting that we will achieve the targets that we have set for this year and well on track.

Last but not least, we have the smallest segment Technologies. And of course, this has been what we call a bit of the problem this year. You remember in quarter 1 and quarter 2, we had 1 single entity, where we had to reestimate the cost to complete on a number of projects, but also renegotiate claims and change orders with clients.

Also in quarter 3, we had a loss in Technologies, a substantially lower loss than what we saw in quarter 1 and quarter 2, but still a loss, burdening the results in quarter 3. And we are now expecting for quarter 4 that we will see a positive improvement in addition to quarter 3 and be on the positive side in regard of the EBITA.

Looking at the top line, we have an organic growth of plus 15%, if we compare the 2 quarters. And in regard of orders received, here it is visible, here we have a lack in incoming larger project orders timing-wise. So on one side, we have the Hinkley Point effect here, but also a couple of other projects in the pipeline that time-wise take a little bit longer than we expected. We also have the scrubber business here, where we have, clearly, during the last quarters been focusing on ramping up, improving our margins, and making sure that the transformation to Asia of the production would be successful. We are now expecting to ramp up the order intake, mainly in the first half of 2020.

So a number of reasons why orders received is behind the level that we saw last year. Book-to-Bill is down to 0.6, but also here we are clearly seeing the improvement we had in quarter 3Q effect that caused still a loss. One of them related to our old legal case, where the -- there was an unexpected judgment by the German high court, they actually revoked an arbitration award from 2017. The work in regard of this was executed in 2011. And this costed us around EUR 4 million additional provision here in quarter 3. So it was a surprise to all of us. And I also mentioned before we are, however, in quarter 4 also for Technologies expecting a certain pick up, so we will have a positive EBITA in the last quarter this year.

Then proceeding to operating and free cash flows. Also here, a positive development above the prior year, but still not as significantly growing -- going forward and improving as would like to see. We have a tradition in Bilfinger that the last quarter is not only the strongest when it comes to profitability, but also substantially cash coming in only in the quarter 4. And we are still having the expectation that we will pick up on the operating and free cash flow also this year in the quarter 4.

I want to stress some improvement in regard of DSO. We are in the DSO days moving to 84 days that is to compare it with 87, the same period last year. But we are also moving forward in regard of the amounts in the DSOs that are related to receivables is increasing versus what we have in work in progress, which in our business is important because we don't have payment issues with our clients once the invoicing has taken place. We have, in general, very good payers.

So further improvement in working capital expected in quarter 4. In regard of the operating cash flow, we are moving here in the quarter to a positive EUR 18 million, is to be compared with EUR 2 million positive last year in quarter 3. The free cash flow moving up to positive EUR 5 million versus minus EUR 15 million last year. Net profit reported and adjusted positive in quarter 3 as well as year-to-date, despite a lower financial result, the lower financial result, of course, also related to the fact that we are only repaying our old bond early December. So right now we have the old bond and we also have the new refinancing structure in the financial results. We also target a positive net profit for the full year 2019. And now I pass back to Tom.

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

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Thank you, Christina. So to wrap up, I think if we look at our strategy horizons, the 3 horizons. We had 2 checkmarks left to place under build up, success in growth areas, that's coming. Net profit breakeven for the year, that will come. And then we move into the buildout phase. And as I mentioned before, we're well on the way with process and system harmonization. We don't give ourselves the tick yet, and what we're doing on the announced measures regarding further SG&A and streamlining will further drive performance culture. So we think it's heading the right way. We are in various countries, combining entities, reducing complexity. So also that one will be well on the way. So what we're doing really is something we announced quite a while ago, and we're now delivering to that in terms of streamlining and quicker -- and focusing the driving of the business, as I said, from the legal entities upwards.

Finally, is the outlook. We confirm and reaffirm our 2019 outlook. I think no surprise on the revenue line. We feel confident on our EUR 100 million target. It's not easy. It's not a walk in the park, but we know what it takes. And we believe that we will get there. So reaffirm the EBITA adjusted line, too. And the free cash flow, I think, you see the dynamics of their momentum is that we will continue to bring that momentum forward. And also deliver a positive result on free cash flow reported.

Looking beyond the end of this year into 2020, our indications for organic growth is stable with a focus on higher margins, as I stated before, we can afford to do that, we have good momentum, we have built a good backlog, and we are seeing a number of places where we're deliberately putting the bar a little bit higher in order to strengthen the margins.

We believe next year we'll reach the 4% EBITA margin. I know it's a little short of the 5% that we originally set out to achieve. We do believe that will be in the corridor for a sustainable 5% EBITA towards the end of 2020. And again, some of the measures you've seen will help us get there. In order to get all the way to 5%, which, again, is something we target or believe we'll get to by the end of 2020. We do need to continue divesting some of the noncore and low-margin business. And we're actually moving a couple of additional companies into OOP. These companies, although they're performing, their margin will, at least in our opinion, never exceed 5%. So although they're on the par with their peer groups, they don't fit into our aspirations. That's a little bit different from companies that may be sub-5%, where we have identified measures in terms of execution, in structure or managing the process that we will continue to turn around and keep inside of the core.

The second line on the footnote there, seeking accretive acquisition opportunities, we have been doing so. We are on the lookout for businesses that would help us expand, that would help us expand not only the margin but also the product range and geographic reach. We believe that there are opportunities coming up, and again, these will help us to meet and even possibly exceed our targets, but we have to get there first.

So I think that concludes the outlook. And we're looking forward to your questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) First question comes from Craig Abbott from Kepler Cheuvreux.

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Craig Abbott, Kepler Cheuvreux, Research Division - Head of Mid and Small Cap Research, Germany [2]

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Just couple of questions on this outlook 2020 and beyond. I would like to just be a little bit clearer on to what extent the scope effects, both potential accretive acquisitions and the shifting of, I guess more units over to OOP to be disposed. To what extent those 2 factors are necessary to get to and sustain the 5% target. And just a follow-up on that. And I understand that comment just a moment ago, correct me, but you have identified some new units where you -- through you -- they won't get to the 5% that you're now moving to OOP for disposal? New units beyond what was communicated in the past?

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

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Okay. Let me -- I'll begin and then pass it to Christina for the new units as you call them. First of all, Craig, thanks for your question. So in 2020, the outlook we've set for the 4% and then coming out of 2020 into the 5% corridor, that will be without necessarily driving those numbers through acquisitions. So we are on the lookout for acquisitions, it will help things along, but even if we did not make acquisitions, we do expect that the work we're doing on margins and SG&A will get us into that corridor.

The scope question, yes, we're often asked what kind of targets would you be looking for. We can describe them what they might look like, but we haven't found many yet that fit that profile. And ideally, the right target would have gross margins that are in excess of our current run rate, so to pull up the gross margin rate. SG&A in excess of 7.5% because that's where we're headed and we can of course do that overnight. And then ideally, additional scope. So that will be the ability to provide our existing customers with more services in the plants where we're already present for a longer period of time. An example would be rotating equipment where we do some work, but we do don't do the full range, we don't do the large electric motors, we don't do the large turbines. These are services that our customers use. And if we're able to add to our portfolio, would give us the ability to, let's say, leverage that scope in terms of a product range scope. Now the final scope would be geographic scope. So if we were able to make an acquisition that was able to do all the things I just described in one of our regions, and we could then use that as a reference and platform to take it to other regions, that would give us not only then competency scope but also geographic scope extension.

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Craig Abbott, Kepler Cheuvreux, Research Division - Head of Mid and Small Cap Research, Germany [4]

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May I just follow-up on that please? How much firepower do you feel you have for potential acquisitions?

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

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I think -- again a good question. We're not speculating too much on that. I think you read the note that EQT intends to sell Apleona, that does figure into our thinking. And if we're able to rotate out some of the companies that would add to that firepower.

We have a range, which we're keeping internal right now for obvious reasons, but I think we know roughly where we're headed, and we'll use that into our strategy considerations.

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

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If I can then add, Craig, in regard of the units that we are now planning to dispose. I just want to remind that we started off this year with 4 legal entities that we wanted to dispose. Two of them left us in the first quarter this year. Two are still with us. I would regard both of them to not being very easy. One, we still believe that we will be able to exit until the end of this year. South Africa is probably beyond this year. We have then reviewed our entities and the progress we have made this year. And we have a small number of legal entities that we would like to -- also try to dispose next year. A small number, to give you a feel for the size of fit, if I take the 2 that we have in this entity right now plus what we intend then to add, we are talking about a sales number of around EUR 250 million altogether. So it gives you a feel for the size of these entities that we would like to see disposed.

In regard of the M&A, I also want to add that the strategy on M&A, we also in our Capital Markets Day, in February, when we present our results for 2019, I'm sure we will also disclose a bit more about what we would like to do on the M&A side. That is in a couple of months' time. But clearly, we understand the expectation that also the market would like to see how our M&A strategy looks going forward for the next year.

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Operator [7]

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The next question comes from Norbert Kretlow, Commerzbank.

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Norbert Kretlow, Commerzbank AG, Research Division - Equity Analyst of Industrials [8]

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Two questions, if I may. The first one would be on 2020 sales outlook, which is stable. I would assume that scrubbers and maybe also first rig from Hinkley Point should allow for low single-digit percentage organic growth. And my question would be, would you say that this assumption is fair? And as a follow-up, if so, would your guidance imply that we are losing volume on other -- in other spaces? And where would that be? And also as a follow-up to this issue, I understand that your exposure to the chemicals industry is typically cyclical, typically with a time lag. And I would expect that you are now facing, if there would be headwinds, you would be facing them now going into 2020.

And so my question is, do you see any significant underlying hesitance in your chemicals clients? I mean you mentioned that there are a lot of turnaround projects, beyond that, is there anything cooking negatively, developing in chemicals demand? And the second question would be on the headquarter reduction. We understood that a lot of your management time was consumed by the DOJ issue. And the indication was always that once this is through, there would be more focus on the operations. So my question would be to make sure your cut in the headquarter, does this imply that only obsolete headcount is reduced? Headcount which is no longer needed for the DOJ issue? Or has there been any change to the -- to your efforts to focus on operating business?

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Thomas Blades, Bilfinger SE - Chairman of the Executive Board & CEO [9]

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Okay. Norbert, thank you for those questions. Let me begin with the broad picture on orders for 2020. Scrubbers, that does continue. What we've seen in the scrubber business is early take up. Right now there's a lull as the -- I would say the fleet owners are installing those scrubbers and also waiting to see what the effect is on the fuel market. Our expectations -- and we're getting already -- inquiries are that there will be a second wave beginning early in 2020. And that second wave will actually feed into not only order intake, but towards the second half of the year also into revenue on delivering those scrubbers.

On Hinkley Point, we don't expect revenue in 2020 from the additional orders in Hinkley Point. We do expect to see order intake. And then that order intake will materialize into revenue towards only the latter part of 2020 and certainly into 2021. So if you look at our revenue profile, it's stable in '20, and the next step will really be in 2021. That's how we're looking at it. And again, Hinkley Point, is why it was helpful to have the comment and the support from EDF. Our people are there, are working, it's a timing issue. I've said it a number of times, and I'm kind of shooting myself in the foot as well. But we are on site, we have a lot of people there, working with the customer, helping them through their timing and sequencing. And therefore, as I mentioned, you'll see it in the order intake in either late this year or more likely now early next year, but you won't see it in the revenue until 2021. What we do see is the turnarounds, of course, I mentioned those. We also see some refinery expansions and we have a couple of larger projects, which are at the, let's say, final contract negotiation. They give us confidence there that also there, there is some activity. Our chemical clients, as you mentioned, it depends in which direction those chemicals are finding their end markets. If these chemicals in the form of polys and plastics are finding their end markets in the automotive industry, then yes, those having some difficulties, let's say, not to the point where they're cutting back on maintenance, but where they themselves are, let's say, losing a little bit momentum on their cash flow, on their bottom line performance, that's evident, but it isn't evident in the maintenance program.

Your question on the headquarter productivity measures. It's not only the DPA and the DOJ. As I said at the beginning, we also had a lot of additional people looking at risk management. That's modeling risk, that's putting in place the risk matrix that we've talked on early in the process. It's also around PSH, SAP introduction. It's on introducing our SAP systems into our HR systems. So a lot of the, let's say, build up we had, if you imagine a wave, in order to deal with getting these projects through, we're over the peak of that wave and we're able to, therefore, streamline our headquarters. And that's the benefit you're seeing in this announcement.

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Norbert Kretlow, Commerzbank AG, Research Division - Equity Analyst of Industrials [10]

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Maybe as a follow-up to this issue, when we talked about the DOJ issue before it was closed, my impression has always been that once it is overcome, once you are through with it, the chance would be that there would be more management capacity available to talk to the clients and to get orders in. Now this is -- we are not seeing this in order intake right now. Can you give us any update regarding, say, management capacity, which has been freed from the completion of the DOJ issue? And the steps you are taking there and what we could expect going forward? Or is this effect already through?

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Thomas Blades, Bilfinger SE - Chairman of the Executive Board & CEO [11]

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It's a good question. It's also a tricky question, but let me begin with the easy elements. The -- lot of our compliance people, especially in, let's say, in allegation management, these are people with a strong legal background or an investigation background. They're not the most ideal people to talk to customers about orders, obviously, that's the extreme case, yes. So therefore, we have to have a little bit of a change out there. Other functions, we're actually doing a 2-step process. So we're reducing our headquarter staff by some, let's say, mutually agreed terminations, but also by transferring people into the operating entities. And that then puts the decision making into the hands of the operating entity management to say they're going to keep those or they are going to keep half of them and displace others.

And that's why as we work through our program, we actually ran a cascade. We think that we will reduce by a little over 100 people in the headquarters, about 50 people at the -- what we call or the previous division management level and by another 50 people in the operating entities in Germany. So that's a total of 200 in Germany. We already have programs ongoing in the U.S. to combine 3 entities into 1, to move their back office people into a single shared service group. We are doing regional consolidation in the Middle East. So it's not only in Europe and in Germany but across the board. And these are the facts that you are seeing in the numbers.

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Christina Johansson, Bilfinger SE - CFO & Member of the Executive Board [12]

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Maybe if I could add to your first question, Norbert, also here looking at this -- the statement of a fairly flat top line going into next year. We have to keep in mind that we have had an incredible year in regard of sales in North America with some large projects here. I mentioned that in quarter 3, we had an organic growth quarter-by-quarter of 20%. And that is related to North America. We can't avoid here as we have some timing issues in getting the new projects on board that we will next year, not be able to achieve the same top line as we will see this year. So that is then, obviously, also explaining why the total top line next year will be fairly flat versus this year.

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Operator [13]

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The next question comes from [Anna Sebastian] from UBS.

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Unidentified Analyst, [14]

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May I ask you to what extent does your 4% EBITA margin target in 2020 depend on changes in the portfolio? I mean disposals and acquisitions? And -- or do you think it's also achievable on the current business mix?

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Thomas Blades, Bilfinger SE - Chairman of the Executive Board & CEO [15]

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No. I think to be clear the 4% don't expect any, let's say, significant contribution coming out of the disposals. Now if we are able to make an acquisition of the shape and nature that I described then that of course will be on top of the 4%, but that's beyond our control. Yes, 4% is what we can manage and commit to, likewise exiting 2020 towards the 5%, any acquisition we make will be on top of that.

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Operator [16]

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There are no further questions at the moment. (Operator Instructions) Next question comes from Christian Korth, HSBC.

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Christian Korth, HSBC, Research Division - Analyst [17]

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I'm aware that you already talked a little bit about the scrubber business and indicated that, let's say, in the last couple of months there was not that much activity. I just would like to ask if you could shed some more light on this and where your current order book roughly stands here, please. And then, you are also talking about the elimination of one level of management. I recall that something similar I think happened in 2013, if I'm not mistaken, which did not have significant positive effect on some of the developments within the company. Did you -- although there was a different management, did the company, as such, learned somethings from the development that happened in 2013 that you are now trying to avoid, when you do something similar? Or is this approach totally different from what happened in 2013? And it's just based on a different level of -- management level elimination?

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Thomas Blades, Bilfinger SE - Chairman of the Executive Board & CEO [18]

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Thank you, Christian. The second question is probably a catch question, right? So it's hard to maybe respond perfectly to that. But 2013, the company was very different, we were in very different markets. We were going through a very different phase. Revenue was probably twice the size. So many, many different things. Where we are today as I was trying to explain earlier on, in 2017, when we kicked off the 2020 strategy, we said we had to put in place many things that should have been there but weren't. Compliance obviously, processes around risk. The SAP systems. And it's like a wave. So we have to build up resources. We have to take on board costs and effort in order to install those. But once they're installed, then of course we can reap the benefits of those measures and begin to come down on the far side of the wave. So whereas, I think in 2013, it was downsizing, rightsizing, whatever. In 2019, going into '20, we're just doing what is normal, put in place a project team, call that project risk or call it compliance. And when the project is implemented -- and this part of the DPA, it's not just to implement but to make sure it's embedded, it's sustained, it's in the DNA, then you can begin to ramp down that project team, if I can refer to it as such.

As we do this, we've been very careful to make sure that the governance that we have created is in place. And we wouldn't do this if we felt that we were putting risk in the wrong direction that people would start misbehaving. I think that's what 4 years plus of compliance have taught us, it's ingrained, it's part of our culture. The same goes for HSE. And therefore, as we do what we're doing, we do it for a very different set of motivational criteria than what the team did in 2013.

On the scrubbers, we had -- at the end of Q3, we had a cumulative order book of EUR 110 million. We're now at EUR 125 million. So that's EUR 15 million more. I think the scope of business, as I said, is going through a slight lull, as people wait to see what is the effect on fuels. The IMO chapter 2 implementation comes into being on the 1st of January. So I think that'll be a big shift in bunker fuel prices. People are waiting to see what is that shift. And then we do expect further orders. We're already getting inquiries from the large customers. So far, we have delivered scrubbers for 73 -- or sorry, we have orders for 73 ships, 84 scrubbers. These are 8 major fleet customers and those same customers are coming back and saying how is your slot planning looking for 2020. So we know there's interest out there, but they're waiting for this triggering event to see what happens to the fuel prices.

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Bettina Schneider, Bilfinger SE - Head of IR [19]

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Okay. We now conclude today's conference call. In case you might have further questions, don't hesitate to contact the IR team. Thank you for your participation, and have a nice day.