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Edited Transcript of GBF.DE earnings conference call or presentation 14-May-20 12:00pm GMT

Q1 2020 Bilfinger SE Earnings Call

Mannheim May 18, 2020 (Thomson StreetEvents) -- Edited Transcript of Bilfinger SE earnings conference call or presentation Thursday, May 14, 2020 at 12:00:00pm 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 & Labor Director

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Conference Call Participants

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* Christian Korth

HSBC, Research Division - Analyst

* Gregor Kuglitsch

UBS Investment Bank, Research Division - Executive Director, Head of European Building & Construction Research and Equity Research Analyst

* Marcin Karol Wojtal

BofA Merrill Lynch, Research Division - Analyst

* Norbert Kretlow

Commerzbank AG, Research Division - Equity Analyst of Industrials

* Stephan Bonhage

Metzler Equities, Research Division - Research Analyst

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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 first quarter 2020 conference call. Thank you for joining. With me in the room are 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 & Labor Director [2]

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Thank you, Bettina, and likewise, good afternoon from myself. I'm going to walk you through the headlines and the market very quickly and then hand over, of course, as always, to Christina.

So starting on Page 2, I think no surprise, significant disruptions in the market, mainly through COVID, but then also, of course, through the development on the oil price. Orders, actually, that's the positive headline on our page here. The orders were up 9% year-on-year organically, even 11%.

Revenue year-on-year, also 9% confidently and 7% organic, both below same period last year. EBITA adjusted dropped to EUR 11 million. Most of that came out of the second half of March even -- not even the full month of March, driven by the revenue drop and, of course, the underutilization on account of not being able to access sites, and again, the effect of the oil price with respect to rate, accessibility, mainly in the North Sea.

Liquidity is actually quite good. It's sound. Free cash flow reported slightly improved over last year. And we do have a sound cash position. We have a solid balance sheet. Nevertheless, we did decide to be prudent and to reduce the dividend to the statutory minimum, which is EUR 0.12 per share in order to preserve and safeguard our liquidity in an uncertain environment with a forward perspective.

We did spend quite a lot of time internally looking at the various scenarios that we built. As the weeks progressed, that began to narrow down, and that didn't give us a level of confidence to come out with the current outlook. We have a list of assumptions, of course, attached to that, so caveats. And currently, we are forecasting a revenue decrease versus last year of around about 20%, yet we will still achieve a adjusted EBITA positive. More details of that, when we go into the financial section.

By roughly looking at the markets, our customers are broad. They're global. They're large customers. And typically, we're seeing about a 15% to 30% reduction in their CapEx ambitions and about a 10% to 15% in their OpEx ambitions.

Now if we look at the various parts of our business, beginning with Europe, E&M, so engineering and maintenance. Beginning with energy and utilities. You recall, this is our fastest-growing segment over the coming years. On the right, you see the arrow up. The 10% indicates that is the portion of our revenue in Europe for E&M, so 10%. But the upward arrow, again, underlines the trends, which are driven by ESG, so climate change. We are seeing interesting developments in biomass power stations. We just signed a deal in Austria, for example. And then, of course, infrastructure will be expected to pick up as the government tries to revive industries. And I think you're well aware of our developments in nuclear, which remains important for us in the U.K., first and foremost, but also in France, in Finland and in terms of decommissioning also in Germany.

Our largest revenue is from chemicals. As you can see there, 40%. We have seen reduced production levels. But interestingly, the market is very robust in Germany. It's actually a little bit ahead of plan in Switzerland. Austria, a little bit down. And what we're seeing mainly here is that the activity shift is around the turnarounds, many of which were planned around the middle of the year. These turnarounds, where the customer is under pressure because of various regulatory needs or because of asset integrity needs, they are trying to ship those into late Q3, early Q4. So as late as possible, yet in 2020, but the large part have already said, no, let's push that to 2021, which makes for interesting discussions because there will be a congestion both late Q3, early Q4 and then in the second quarter and the third quarter 2021.

Oil and gas. Yes, as already said, it's the biggest hit, therefore, the 2 red traffic lights and the down arrow. We don't see that changing anytime soon. When we do look at our locations, the hardest hit have definitely been in Aberdeen, so Northern U.K. and Stavanger in Norway, both of those are heavy offshore industries.

As I turn the page, we'll come to what it means in the U.S. But the double red there and the downward arrow, this is something which will be with us for quite a while yet. We are taking the right measures, both around personnel and about reorienting our business, but I think we'll come to that in the Q&A.

If I flip the page to E&M International, also beginning with energy and utilities. It's a smaller part. As you're aware, the majority of our revenue, both in Saudi and in Kuwait comes not from oil and gas but from power generation. That does continue, so that's a stable business. In North America, we're less oriented towards power, oil, energy and utilities, but we do expect that the government will pump in money at a later stage. It's not in our numbers. And these are the trends and these are discussions we're having with our regional management and also with customers in those areas.

Our chemicals is -- again, you see that the arrow flat. We aren't seeing a lot of slowdown in the projects that we've begun in the Middle East. In North America, we are coming to the end of our project. So you won't have seen that directly in our Q1 numbers, but you will see later in the year. A lot of this was anticipated. But of course, now with the oil price developments and downstream developments, we think that those projects that are expiring won't immediately be replaced with ones.

Finally, of course, oil and gas, no surprise, downward arrow. Also here, we are seeing that if investments have kicked off, in other words, FID is done and the project has begun, they do continue. If FID has been sanctioned, but no start of the project, then these are currently on hold. And of course, anything new, really, is a question mark right now. I think having said that, that kind of covers our year-end market.

I will go over to technologies, which remains a challenge, but we think we're dealing with that. The markets are -- in terms of pharma, they're flat. There is talk of customers reviewing their supply chains and moving production back into their borders for various reasons. Hence, the comment at the bottom of the page. The arrow is flat, not because we don't see an uptake in the current environment around COVID and around new products, but again, because we're dealing on a second level. We're a second-tier supplier with the EPC companies. They'll see it first. And any expansions which may come their way, I think, we will profit from when it comes to building out the current pharma capacity in Europe.

Energy and utilities. Again, upward arrow, similar story to my comments in E&M in Europe. It's driven mainly by the demand in nuclear, of course, Hinkley Point. On the downside, the maritime business, scrubbers, this has gone to 0, for a number of reasons. The fleets have been downsizing tremendously around the world as global trade drops, so does the requirement for ships. But also, of course, the spread on high sulfur and low sulfur bunker fuels has dropped down to $50 to $60, down from a high of $300, which, of course, would mean that the return on investment on the scrubbers has gone from somewhere around 18 months to 7 years. That and with the reduced demand means that business really is down to 0.

Nevertheless, we do think that the current developments in energy and utilities and very much around nuclear in the U.K. is going to drive our business upwards, and we'll continue to do so in the coming quarters.

That's the very quick sprint through the market. I think no surprises for you. And therefore, to get in details on the numbers, I'll hand over to Christina.

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

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Thank you, Tom. Warmly welcome also from my side. Let's have a look at the financials, starting off on Page 7 with the order intake. Actually quite a good number for the first quarter.

On one hand side, we have larger projects increasing that we were missing in quarter 3 and quarter 4 last year. Now we, in quarter 1, we're winning and signing of both first part of Hinkley Point around EUR 50 million, but also BP project pipe rack in Gelsenkirchen, which is above EUR 100 So that helped us on the big project side. We also need to keep in mind that we had some corrections in the order books in regard of the framework, especially framework contracts in oil and gas, which means E&M Europe, so Norway and U.K. So we were also reducing this out of the order intake. So an organic increase versus last year first quarter of 11% is a very solid number for the first quarter.

Looking at the book-to-bill, we are at almost 1.2 after March. And the order backlog at EUR 2,562 million, which organically is 4% below last year's number. However, we have a solid pipeline and especially in regard of Hinkley Point. We are expecting to see further orders coming in larger size, so a positive first quarter on the order intake.

Then proceeding to Page 8, looking at the revenue. It was, as Tom said, negatively affected by Corona and the lower oil price, especially during the last 2 weeks of March. On the top of that, as we have communicated earlier, also North America that had an extremely good project last year, we expected also that the first quarter would be substantially lower. And therefore, you see we managed to generate EUR 915 million of sales, which, organically, is 7% below the level in the first quarter last year.

Looking at the profitability. The first quarter is closing with an EBITA adjusted of minus EUR 11 million versus minus EUR 4 million last year, obviously, also colored by the lower sales, lower utilization and in some of our entities, some underutilization. So in quarter 2, where we will -- we expect to see the lowest sales numbers and most of the impact from corona and the low oil price. The underutilization with different mitigation actions, we do whatever we can. That includes, of course, furlough. And we already, by the end of March, had a large number of staff on furlough, but also in those locations where we don't see a fast or a midterm improvement, which means, especially in the oil and gas, we are also laying off people.

Looking at the EBITA adjusted margin, we are achieving then the weakest quarter from the seasonality, minus EUR 11 million or 1.2% minus. The adjustments or special items amounted, in the first quarter, to EUR 9 million. So the reported EBITA closing at minus EUR 20 million is to be compared with the first quarter last year where the EBITA reported was minus EUR 3 million. The EUR 9 million of special items or adjustments that is represented by EUR 6 million of restructuring already planned and EUR 3 million of IT investments rolling out in the last year are joint IT project.

Looking at the forecast for special items. I remind you that we had EUR 72 million of adjustments last year, we planned, before corona and the lower oil price, to substantially reduce that. We are now expecting a number of around EUR 50 million for the full year as special items, of course, the increase and related to restructuring cost -- restructuring measures that we need to take, especially in U.S. where we normally cannot use any furlough programs, but also in the oil and gas side, especially in U.K., where we don't see the market recover that soon.

The number of people on furlough that we will also have going forward is mainly related to U.K., to the Nordics, the Norway, to Germany and the Netherlands as well as Austria.

If we then proceed to the next page, to Page #9, looking at the 2 major KPIs within the P&L. We have, on the left-hand side, the adjusted gross profit. And due to the underutilization of our capacities, we are in the first quarter achieving a ratio of 7.4% and or EUR 67 million. That is to be compared with last year and the highest sales where we were at 8.1%, also comparing with the last quarter, which is normally the strongest quarter in the seasonality for us, where we achieved 11.3%.

Going forward, we are expecting to improve this adjusted gross profit ratio, the 7.4% significantly by using the mitigation actions. I mentioned relying on furlough programs in Europe that we are using. And they are in place as well as some restructuring here in those entities, with a substantial lower sales than planned.

On the right-hand side, we have the selling and administrative expenses. Also here, very positive first quarter. We have what we internally call the sub 7 project that we presented in autumn last year and where most of the implementation was done in the first quarter of this year. And we managed to close in absolute numbers the first quarter with a SG&A cost of EUR 84 million versus last year EUR 89 million in the first quarter, so a reduction of EUR 5 million, even if most of the impact of the sub 7 is starting to come in, in quarter 2.

To remind you here, we have committed us to achieve an SG&A under the sub 7 of EUR 330 million in absolute numbers for the full year 2020. And given now the loss in sales that we are expecting for this year, we will go even lower. So we are, in addition to the sub 7, taking additional actions to try to mitigate and be flexible here as much as we can. All of that already initiated.

Then proceeding to the Page #10, looking at our 3 segments reported. We have E&M Europe, the largest segment where we clearly saw in orders received an improvement. So orders received in the first quarter -- sorry, my mistake, we saw a reduction going from EUR 595 million to EUR 573 million. So a reduction organically by 3%. Here, we have a part of the Hinkley Point order and also a part of the pipe rack that it is acknowledged in the first quarter.

Looking at the results. We are achieving a result of 0.7% due to the underutilization or EUR 4 million in absolute numbers in the first quarter. The underutilization, of course, related to the oil and gas part, which is Norway and U.K., but also partly in the first quarter due to corona hit in Poland, that is, to a large extent, providing our businesses with staff, and also Austria.

Looking at book-to-bill, still solid with 1.1. And looking at the outlook, we will come back to the full outlook for the group, but the outlook 2020 is a significant decrease in revenue, obviously, because we have the upstream oil and gas in this segment. And then EBITA adjusted, we are guiding right now with saying still positive.

If we then proceed to E&M International on Page 11. Looking at the revenue, we see a large drop here in the first quarter versus the first quarter last year. So organically, minus 25%. Most of that is related to North America, as I previously mentioned, where we had larger projects giving us a lot of sales last year in the first quarter. And these projects are now slowly but clearly coming to an end.

On the orders received, we have organically a decrease of 4% in the first quarter. EBITA adjusted is 0.8% minus, especially due to underutilization in North America and given that we have very, very little tools in America to be flexible and no furlough programs. We are here working on the restructuring. And you will see as we proceed into quarter 2 also that a part of our layoff programs will be related to North America. Some of that's already implemented.

The outlook for 2020 for the segment E&M International is, for revenue, a significant decrease versus last year. And also here, an EBITA adjusted still positive.

Proceeding to the smallest and last segment, third segment, technologies. Here, we have, on the order side, then the other half of Hinkley Point and pipe rack coming in. So a very, very solid growth in orders received, actually organically, over 150% in the first quarter. On the revenue side due to underutilization again, we are going back, so organically 5% lower revenue in the first quarter of March.

EBITA adjusted is negative, but improved versus the first quarter last year. We had a fairly big hit in regard of corona impact in both Austria and in France in the first quarter, on the top of that, as Tom mentioned, the effects coming from the scrubber business that is now not building a business case that makes sense.

Looking at the outlook for 2020, the guidance is a slight decrease in the top line and an EBITA adjustment significantly improved versus last year. Last year, we had a loss of minus EUR 28 million in technology.

Last but not least, on Page 13, we have the free cash flow, net trade asset and also the net profit. Both net profits, reported and adjusted: reported, minus EUR 24 million; adjusted, minus EUR 13 million is negative. Our free cash flow reported improved slightly to minus EUR 93 million. Prior year was minus EUR 102 million. Free cash flow adjusted, minus EUR 80 million. That is a similar level as last year in the first quarter. And also net trade assets, similar day numbers as we saw last year after the first quarter.

As of today, the cash flow development now being in May, but looking at closing April is bearing out very well, and this, despite the negative business environment. We are on plan, even if we have a lower sales and we have a lower profitability. We are on plan when it comes to the liquidity and cash flow.

We have strong measures in place to safeguard our liquidity going forward. And we have no refinancing. We had the refinancing completely closed and finalized successfully last year. The next time where anything will need to be refinanced will be in 2022. So from a cash point of view, very solid and looking very good.

Last but not least, I want to raise that S&P has done the yearly review. And they just, today, I think even after lunch, they were publishing the report in regard of our rating. We were fighting hard because we believe that the impact that we will see negatively on sales and profit this year will -- it will have a significant impact as you see in the guidance this year, but we also see good opportunities in quarter 3 and 4 to start to pick up again. But nonetheless, given the difficult environment right now, the rating has been a downgrade. So we go from BB to -BB, but with a stable outlook, a stable outlook very much because being able to keep that outlook is based on our strong liquidity, on our strong progress on the cash flow.

And I can also confirm that April, and today, mid of May, this strong liquidity is continuing to develop, and also then, of course, helping us through a very difficult quarter 2, where we regard the quarter 2 from a sales and profitability point of view to be the weakest.

Thank you, and now back to Tom with the current outlook for 2020.

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

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Thank you, Christina. Let me begin by reading the fine print to the bottom of the page. So we have a number of assumptions. As I mentioned at the outset, we've been spending quite a lot of time not only modeling what we think the year might look like, but, of course, calibrating that against a lot of customer interaction and interaction with our regional management.

What we see currently, and I think you hear from many places is, Q2 will be the worst. April will be the worst month in Q2, and then we see a gradual recovery throughout the year. And by Q4, we should be close to what we had budgeted. That, of course, again, is on the assumption that the turnarounds, which play a part of that remain where they are, so late Q3.

It does assume that some turnarounds go into 2021, and that doesn't change. Government support continue to be in place as is advertised and I think generally supported across Europe. And we think the oil price, of course, will remain roughly where it is, low, low recovery, so we're not expecting any tailwind or support from there.

So having deliberated around that, and I think also having a fairly well-reacting and proactive management team, I think the last 3 years of what we've been through have toughen the management. They know what to do. They know not to hesitate. The structure we put in place at the end of last year not only gives us the advantage of reducing our SG&A and giving us some tailwind there, but also putting more decision power into the regional management. Of course, they use that to react quickly.

On the basis of that, we did change our current outlook, as you're aware, published this morning. So the revenue year-on-year decreased around about 20%. Our EBITA adjusted will be positive, and our free cash flow reported will also be positive.

So with that, I think that concludes our brief summary of Q1, and I will return it, and then we're open for questions. Bettina, over to you.

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Bettina Schneider, Bilfinger SE - Head of IR [5]

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Yes. We start now our Q&A session. Stephanie?

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question comes from Marcin Wojtal from Bank of America.

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Marcin Karol Wojtal, BofA Merrill Lynch, Research Division - Analyst [2]

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Yes. I just wanted to ask for a little bit of clarification on your free cash flow target for 2020. You expect this to be positive. So what sort of working capital assumptions are you using? Are you expecting a positive inflow of cash? And you mentioned that in Q2, so far, the performance is actually quite good. So could we get maybe a bit more clarity on that? And also in terms of free cash flow, what is the amount of restructuring expenses that is currently anticipated to be taken in 2020 in terms of cash impact?

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

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Good. Yes. Let's talk with the full year impact. What we, from April, as a positive factor, of course, has got, is that a number of countries are letting us postpone payments of social insurance, but above all, tax. So from April -- not before April, but from April, we will see that we can delay quite a lot of these payments, partly also beyond the year 2020. But in most cases, we are talking about that it has to be paid until the end of the year. But for U.S., for example, it's coming in with programs that is executed, so that in 2020 payments can be postponed to 2021 or even 2022.

On the top of that, we then have, of course, also the work that we started last year in improving our true working capital, the trading working capital. And even if we are right now in line with the numbers for the first quarter last year, our expectation is that, this year, we will be able to improve this. And if we, example, compare with what we achieved in DSOs and DPOs at the end of last year, we have similar numbers that we are expecting to see improving as we proceed this year. So the trading working capital also helping us here. And in regard of the restructuring, I mentioned a number of EUR 50 million that we are expecting or slightly above EUR 50 million for this year. We expect also that the cash out happen this year to give you a fair feeling for how much restructuring will burden our cash flow.

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Operator [4]

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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 [5]

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I have 2 questions, if I may. The first one is on the corona and the oil price impact in Q1. Could you maybe quantify roughly the breakdown of the 7% organic sales drop between, say, excess constraints from corona, oil price plunge effects and maybe other effects? I mean, in the U.S. where projects phase out, it also looks to be sort of a demand problem. So could you give us a rough idea about the breakdown of the sales impact?

And the second question would be rather on the underlying strategy, which you communicated on the Capital Markets Day that is, in particular, to boost the gross margin by efficiency gains. Would it be fair to assume that maybe some of the work which has to be done now might cause maybe some delays but that the underlying work to raise efficiency, and therefore, to have, in the midterm, better margins, that this is on track?

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

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If I start off with the corona and oil price impact on the quarter 1, it's always difficult to state an exact number related to one reason. But I would say that the effect in the first quarter on sales was in absolute numbers around EUR 50 million. So we lost around EUR 50 million sales in the third quarter due to corona and the lower oil price.

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Thomas Blades, Bilfinger SE - Chairman of the Executive Board, CEO & Labor Director [7]

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Then if I would pick up your question on the margins, Mr. Kretlow. I think when we look at our margins in the new orders, okay, we're quite satisfied that we're able to still take in new orders above the aggregate 12% threshold that we're targeting for in the long run. So I'm quite happy with the order intake development. I'm quite happy with the margin in the backlog. What does give me some concern is utilization. And our way to address utilization is to adjust a headcount, of course, but also in a way that doesn't leave us stranded when we go through what is going to be quite a big swing in the number of people that we have out there in the customers' facilities. In the worst case, which can actually be a best case, we're actually looking at some countries in Q4, where we can move employees across border to deal with what we think might even be the classic use-it-or-lose-it surge at the end of the year. So I think, again, to repeat, order intake margins are good. Margins in the backlog are good. Underutilization short-term is really the issue.

Now in the long term, so going back to February 13 Capital Market Day, I think in the long term, definitely, when we look at our numbers and, let's say, our 2024 numbers, we will have to take a large part of the oil and gas expectations out of that and replace it with other revenue. We have ideas. We think we can do that, but that will be subject to another discussion later on in the year. So overall, long term, midterm, we are confident that we can continue to drive our gross margins in the right direction, that is upwards and towards the long-term 12% aggregate target.

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Operator [8]

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The next question comes from Gregor Kuglitsch, UBS.

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Gregor Kuglitsch, UBS Investment Bank, Research Division - Executive Director, Head of European Building & Construction Research and Equity Research Analyst [9]

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Perhaps 2 to 3. So the first one, can you just give us a sense in your budget how bad Q2 is? I mean, are we talking 20%, 30% decline or is it more? It's very difficult for us to really know exactly. Just so we can get a bit of a sense in terms of the decline that you expect there.

And then secondly, you obviously caveated your guidance with a number of points, but as -- well, I guess, the one that's perhaps, to my mind, at least, the riskiest is probably this turnaround situation. So I want to understand if those that you currently have in your budget, if they were not to happen, what the impact would be, just as a rough sense. That would be helpful.

And then finally, can you just give us a sense? I know you don't disclose your covenants, but have you -- I presume you've stress-tested the earnings and so on for -- and at what point you get close covenants? So if you could just give us some sense at what level you'd see problems, I don't know, in terms of revenue decline or EBITA or whichever way you want to look at it.

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

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Maybe I'll begin with the overall picture of the V. We said 20% on the year. You saw numbers for Q1. We said Q2 is going to be the worst. So yes, we're around the 30% drop year-on-year in Q2, and then, of course, coming out of that as we go forward. So that's really the shape of the curve, and I think that's what you're heading for. The caveat in guiding, it's not really in the budget, it's in the forecast, yes. And we had to make the forecast based on a number of assumptions, which, again, we tested with the customers.

I'll give you an example. We have a turnaround planned in Holland with one of the customers. And on April 28, which coincided with the Global Health, Safety & Environment, they -- we actually did a dry run of how a turnaround -- in the turnaround, you're putting in several hundred people into a facility, how we do that under the COVID norm, so having additional protection, respecting where we can the distancing, sanitizing, going in and out, all these things, monitoring temperature. And it can be done. So we think that if we're ready, if the customer is ready, our people are disciplined. They're well-trained in HSE, and we can then go ahead and perform the tasks. So those are all kind of the caveat, if you like, that play into this. Now if there's a second wave, if the government changes its mind on its levels of support, then, of course, we would have to revise those assumptions. But we're feeling -- we wouldn't have come out. I mean, you know us as being conservative. You know us as being ideally boring, as I put in the past. We wouldn't have come out if we hadn't done the necessary homework behind this. But as you said, there are caveats.

I will then hand over to Christina for your question on the covenants and the stress testing.

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

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Yes. I mean, especially on the liquidity side, of course, I said that we are well on track, and we are probably better on the liquidity and cash side than we are on the profitability side right now. But we also know that a couple of clients that will change their behavior in paying us that can make a significant difference here. And if we get larger projects coming in, in the second half, we will also need cash to finance and fund the working capital. So of course, we are doing on a regular basis a stress test. We have a covenant in place for our credit line for RCF. But for the funding last year, the bond, we don't have any covenants to meet. And these covenants that we have for the RCF, the EUR 300 million credit line, it's quite a generous one. It doesn't mean that we can't get into trouble. But given the forecast that we now do on a very regular basis, given these scenarios that we have and the range of best and worst case, we still expect that we will be able to keep these covenants and manage that. From a cash point of view, obviously, quarter 3 will be the biggest challenge as the sales, we know, will go down in quarter 2 to the lowest level. So quarter 3 will be the real stress test. But right now, we are quite confident with the assumption we have that we will not take any risks here. And in case we would, if 1 or 2 or 3 major clients would, for whatever reason, not pay on time, then we obviously also safeguard with further mitigation actions here. But right now, we are confident that we would be able to manage this from a cash point of view well.

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Operator [12]

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The next question comes from Christian Korth, HSBC.

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Christian Korth, HSBC, Research Division - Analyst [13]

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I have 2 questions. The first one is on your outlook for the 2 E&M segments, where you expect a significant decrease in revenue for both of them this year, yet the development in the first quarter was quite different. And I would have thought that the international business might be hit harder than the European business given higher exposure to oil and gas and the pipeline in the U.S. market versus the European one. Can you elaborate how we should think about this and if you expect both segments to be down by a similar magnitude or if there will be a distinction in the significant decrease [wording]? That would be my first one.

The other one is if the restructuring -- no, sorry, otherwise, if the recovery is not coming as forecasted or planned, when would you revisit your current plan on restructuring? Is it an ongoing basis? Or is it a say, okay, let's see what happens until June or July, and then we will decide on this again?

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Thomas Blades, Bilfinger SE - Chairman of the Executive Board, CEO & Labor Director [14]

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Yes. Interesting questions. So I look at my notes as well here. I think when you say the 2 segments in Europe, you mean, one is the E&M segment, the other is the T segment. I'll assume that's what you mean.

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

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Two E&M.

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Thomas Blades, Bilfinger SE - Chairman of the Executive Board, CEO & Labor Director [16]

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So international and European, okay. So the both E&M segments, okay? Now I'm back with you. So they are definitely impacted in different ways. I would say the impact is less in Europe. So the drop down, the V isn't as deep. And we try to come up with the right words. The V isn't as deep, and then the recovery is there. Internationally, it is deeper, the V, because of North America getting the double hit, if you like, and then recovering slower. So that's probably the best way I can put it. And then again, within Europe, we have a very mixed picture because, as you said or as you alluded to, North Sea, significant, but it's going to stay with us. So we have to live with that. We adjust on a mid- to long-term basis rather than a short-term adjustment, which is what we do in -- on Continental Europe. We have one country strangely enough where we're ahead of budget. That's Switzerland. And talking with them already this week, that's not going to slow down. So you've got this mixed picture, which we're trying to manage. But we think we have the perspective. We have the right variance, and we have a little bit of, let's say, leeway around our guidance. So I can't be much more exact than that. But deeper V in international than in Europe and also slow recovery, quicker recovery in Europe.

So the second side -- apologies, second part of your question, if recovery is not coming as planned, when will we revisit our current plan on restructuring? Well, we look at our plans continuously. So it's not that we close our eyes to the end of the quarter. Really, it's on a monthly basis if things are on track. And if things move, then, of course, we get that information quicker. When I allude to things moving, for example, the government support on furlough in Holland, it was originally already complicated enough. And it was a wage subsidy. Currently, there's a discussion around it turning from a wage subsidy into a loan, okay? So when those things happen, we look at them quickly, we build them into our model and check the impact. But other than that, the next expected message to the outside world assuming, of course, that on the aggregate, things are the way that we are portraying it, when, again, we have some wiggle room, some bandwidth, if you like, then that would be at the end of Q2, which we would then announced in mid-August.

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Operator [17]

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The next question comes from Stephan Bonhage from Metzler.

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Stephan Bonhage, Metzler Equities, Research Division - Research Analyst [18]

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I have 3 questions. So my first question is you said that there will be some permanent cuts maybe in different business areas with subdued outlook. Can you concretize which business areas do you exactly mean? And what kind of concrete measures? So what are potential long-term impacts on sales and profitability?

My second question is regarding your energy business. So it seems like you have a very good run there. And I just want to know if we can -- maybe expect some more orders with high volume in the coming quarters.

And my third question is if you look at all the easing of lockdown measures around Europe and the increase in oil prices, do you -- may already see some kind of recovery in your business, especially in the maintenance business?

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

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Okay. Let me have a go at those permanent cuts. So -- and a little bit of -- to your last question. In the upstream business, so again, Aberdeen and Stavanger to be very specific, we think that the cuts we're looking at right now, they're in the order of 45% to 55%, we think that those are more permanent cuts. So there we have actually gone and released people. Where the government furlough rules and regulations allow, we have furloughed people, because it costs us little to no money because the government is putting their bill. But ultimately, we will have to move somebody from furlough into terminations. So there, we're adjusting our business to the environment on a, let's say, midterm basis, but of course, with immediate reactions.

In other parts, I mentioned scrubbers earlier on. We had expectation for the scrubber market to have a second wave this year. We've taken those expectations to 0. We do have ongoing orders that we are completing. The customers are -- contrary to before where they were pushing for delivery, they're pretty relaxed because a lot of those ships are not moving right now. And even if we deliver, then the customer still hasn't set a date for installation. So given that outlook, we're looking to see how we can review strategic options. Let me put it that -- the inverted commerce for that business. But we don't expect that to be a contributor as we go into the future. So we're trying to, like I said, look at alternates for that particular business.

Within technologies, the businesses that were struggling last year are improving, but they're still struggling. And our remit there has always been to turn them. And then once they're turned and we're able to also there look at strategic options, we would do so. That's going to be a little more challenging right now. We may have to widen the horizon, but also there, we're going ahead.

Your question to try to define the level of volume around energy, oil and gas, I would say -- I think we touched on that. Christina mentioned at the beginning, a large part of the 20% is oil and gas related. The other part is push of turnarounds into next year. The turnarounds will catch up. The oil and gas will be much lower. So we're not actually planning, as I said, for a tailwind from oil and gas recovery. We think where it is right now, it will be for some time through the combination of adequate supply and short-term reduction in demand.

The development, and thank you for the question there on order intake around energy, yes, we do think that will continue. In fact, we know it will continue because we're having those discussions. And we feel confident that we can continue to grow the energy business in line with the expectations that we articulated at the Capital Market Day in February.

Lockdowns in Europe, there, I think also I alluded to it. It never went down as far as some of the other industries did, right? So as I mentioned, in Switzerland, it didn't go down at all. In Germany, we think -- no, I told you a low point on the year of about 30% in Q2. Germany in Q2 will be at the low point of 10-plus-minus percent, so again, changing businesses. So when you drop by 10%, getting it back up again is not that difficult. So I think we are fairly confident in our current visibility and our ability to get back to work, which is happening as we speak.

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Operator [20]

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The next question comes from [Eric Stride] from [CFAS].

Sorry there are no more further questions at the moment. (Operator Instructions)

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Bettina Schneider, Bilfinger SE - Head of IR [21]

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There are no more questions. So we now conclude today's conference call. In case you might have further questions, don't hesitate to contact the IR team or myself. Thank you for joining, and stay safe. Goodbye.