Bilfinger SE

XETRA:GBF

Earnings Call Transcript 2021-Q2

[Bettina Schneider, Head of Investor Relations]

Okay. Thanks, Maura. Good afternoon and welcome to Bilfinger's conference call on the second quarter of fiscal year 2021. My name is Bettina Schneider, and with us today in the line are Christina Johansson, CFO and Interim CEO; as well as Duncan Hall, COO of Bilfinger.Christina and Duncan will now present on Bilfinger's business development in the last month as well as on the capital allocation decisions, which were made yesterday and published yesterday evening. [Operator Instructions]With this, I'd like to hand over to Christina Johansson.

[Christina Johansson]

Thank you, Bettina. Dear colleagues, a warm welcome to our conference call also from my side. Today, Duncan and myself would like to present the numbers for quarter 2 2021. And afterwards, we look forward to answering your questions.I'd like to start on Page 2 where I would first give you a short overview of the key figures reflecting the continued positive momentum we have seen in volumes and earnings in quarter 2. We are experiencing a supportive dynamics in most of our markets. Orders received have grown 16% organically, making it the best quarter in more than a year. We again surpassed the EUR 1 billion level also due to major contract wins in our Technologies and E&M International segments. Duncan will later go into these wins in more detail in a moment.Revenues were significantly up by 29% organically. However, quarter 2 of last year was by far the quarter most affected by the COVID-19 pandemic. We achieved significant growth rates in E&M Europe and Technologies.A good EBITA adjusted of EUR 26 million in the second quarter is a clear indication that the cost reduction programs implemented in 2020 are paying back. We also recorded a lower amount of special items. After a strong first quarter, reported free cash flow [ in quarter 2 ] was minus EUR 43 million, and thus, substantially below the prior year's level. This was mainly due to growth-related working capital consumption. Moreover, the prior year quarter was also supported by deferred taxes and social security contributions of more than EUR 90 million that have been mostly paid at the year-end 2020. Corrected for these deferrals, reported free cash flow year-to-date was on prior year level.In our outlook for 2020 (sic) [ 2021], we expect unchanged significant revenue growth. In light of the encouraging earnings development in the first 6 months this year, we now anticipate the adjusted EBITA margin to exceed the precrisis level of the financial year 2019 and to reach approximately 3%, although revenue in 2021 is still expected to be significantly below the 2019 figure.I would now like to turn to Page 3 and comment on the decisions made yesterday on the use of the funds that we received in May from our preferred note in the resale of Apleona. As already communicated last night, the Executive Board and the Supervisory Board decided to allocate the available funds, including the EUR 458 million, for Apleona while following a balanced and shareholder-friendly approach, still in line, however, with our long-standing financial policy.We will use our strong liquidity for debt redemption, but also for a distribution to shareholders as well as for investments in organic growth and acquisitions. EUR 108.5 million for the early redemption this October of the outstanding tranches of our promissory note loans due otherwise in April 2022. This was saved as an interest expense -- will save us an interest expense of around EUR 3 million per annum.Furthermore, the Executive Board and the Supervisory Board will propose an additional dividend payout of EUR 3.75 per share to the Annual General Meeting in May 2022. This corresponds to a distribution of EUR 150 million to our shareholders, in addition to the regular dividend for the financial year 2021.Further, the Executive Board and the Supervisory Board will make a proposal to the AGM in May to approve a new authorization to buy back shares in the maximum amount of 10% of Bilfinger's capital stock. Afterwards, the Executive Board intends to propose to the Supervisory Board a share buyback program with a volume of up to EUR 100 million starting in summer 2022.The strong balance sheet and the expected positive free cash flows in the coming years will also enable us to invest several hundred million euros in organic growth and bolt-on acquisitions to strengthen our market position, especially in the dynamically growing sectors as well as with some regional additions. The final scope of investments will depend on our organic progress, M&A valuation multipliers as well as on the quality of potential targets.As you can see on Page 4, all this is embedded in our midterm target to regain an investment-grade rating. We hereby reconfirm our capital allocation priorities. We communicated this also in our Capital Markets Day in February 2020. It is our policy to maintain the key financial metrics in the range of an intermediate financial risk profile according to S&P.We also confirm our dividend policy. It consists of a floor dividend of EUR 1 per share and the explicit intention to provide a sustainable dividend stream of 40% to 60% of adjusted net profit going forward, assuming a corresponding development of our group.We will also act according to our communicated M&A criteria. Now new companies will be fully integrated into the group. We want them to be EBITA accretive 1 year after integration and expect them to earn the capital costs 1 year later. Generally, we keep our asset-light business model with a strong focus on the return on capital employed.Ladies and gentlemen, this is how we intend to optimize our capital efficiency. We now would like to come back to the development of Bilfinger in quarter 2 2021 and provide you with a short overview of the market development in our 3 business segments. I will now hand over to Duncan Hall.

[Duncan Hall, COO & Member of the Executive Board]

Good afternoon, everybody. I hope you're all well and that you and your families are staying safe and healthy. I'm going to take a few minutes to talk through the markets, and then we'll come on and talk about some of the recent contract wins.So on this first slide, you can see the E&M Europe markets here. When we look at the chemicals and petrochem, we continue to see a good demand for both maintenance and projects. It's come back nicely. We've seen the recovery come forward and projects start to emerge as well. It's also been very good for our business in both 2021 and looking forward to 2022 to see a very high number of shutdowns being carried on. Some were deferred from 2020, and now these will be executed over the next 18 months, which is very positive for ourselves.Within energy and utilities, we still see the drive for energy savings and natural resource savings accelerating, and we're receiving offers for front-end and orders for the front-end projects across all these energy transition spectrums. It's developing as we had expected. We're working with a mixture of technology providers, and also our existing energy businesses that we work with are heavily investing in the transition towards carbon-neutral technologies. And our services and reputation in these areas really appeal to both of these customers.Within oil and gas, maintenance is increasing. We still have some restrictions from COVID that remain, slightly different ones around some bed space restrictions offshore. Some is also getting personnel into those markets, into some of the territories that still have some restrictions. But we're seeing certainly the maintenance area really recover. And in half 2, we expect that to fully get back to what we've seen in the past. There is still a backlog of maintenance work and some efficiency projects that we expect to start to see emerge as the next budget cycle for our customers comes around.If we move on to E&M International. Some similar trends, not a lot of movement in the market here. Again, positive but certainly lagging behind Europe in terms of the pace of recovery that we've seen here. There are some good opportunities in chemicals and petrochem emerging for our core maintenance services, especially from our global customers. We're seeing some good crossovers come here and learning from the efficiency improvements that we've developed in Europe coming through.Energy and utilities and oil and gas demand continues to be strong, and similar to within -- that we see in Europe, oil and gas customers looking to invest in the new technologies as we move forward.Moving on to Technologies. Here, we operate, as you know, in some very highly attractive markets, and developments continue to be positive. In the nuclear areas, we're in discussions -- in addition to Hinkley Point, we're already operating for opportunities in France, further ones in the U.K. and in Finland. And in Germany, we are heavily involved in decommissioning having just finished a successful project at Mülheim-Kärlich. In pharma and biopharma, after the initial vaccine changeover is brought to some small to mid-scale projects, we're now seeing more significant investments in longer-term COVID-related treatments, which is having a good positive effect on our pipeline as well as existing orders. And very pleasing to see as well, we've secured some maintenance contracts and we see this pipeline really starting to emerge, and early success has been great within our business as we start to develop that crossover successive services on the back of the projects.If we move on to Slide 8 -- sorry, I think it might be slide -- Slide 8 and talk about some of the projects. Obviously, it wouldn't be right if we didn't talk about Hinkley Point. But this is in a very different way. So in addition to our existing 3 major contracts, we've recently secured over EUR 20 million contract here for inspection services. So this is one through a competitive bid where we've developed our inspection solutions and real value to the customer by adding our strategic services onto our core offerings. Very much, status as a Tier 1 supplier has been confirmed by this additional order area, and our main contracts are progressing very well. The endorsement of us providing the inspection services into Hinkley Point over the next 5 years certainly confirms that we must be doing okay in this area.If we move on to the next slide, an emerging market, battery production plants and batteries in general. This is a real key area for the whole energy transition market. Transmission and storage of energy is absolutely key to the future. Batteries will play a major role in this, not just storage but also the transportation. And this particular example is a production facility for feedstock into batteries. It's in Finland. It's funded by our E&M Austrian business with support from our local Finnish team, another very good example of ONE Bilfinger delivering more to customers.Also, we've got significant opportunities and already contracts in progress across the spectrum, whether that is extraction of the raw materials, chemical production in this particular case as well of the feedstock for the batteries and also final battery assembly. And these are actually happening across quite a number of our regions in Europe. It's not just isolated to Germany and the Nordics. We're seeing this come across everywhere. And we're really establishing strong references in this key growth area to enable us to go forward and grow even more.In this last area, I just want to talk briefly about biopharma and very successful order intake year-to-date and a good developing future pipeline. Again, this is another great example of the full scope of Bilfinger really appealing to a customer. So here, we're doing engineering, fabrication, installation, and Bilfinger delivering as one team, with 3 of our technology businesses involved in this particular project.This order also involves the design of a twin facility that will commence after this particular asset has been built. So we're really adding value in the efficiency of the process for our customer here and learning from the first plant to deliver a second plant in the future.This involves -- it's a key order also for our French business. And over the next 2 years, they will be working closely with our Austrian colleagues, IPS, to do the fabrication of the skid units to install in this particular project. So a great piece of work for us.I'd now like to hand back to Christina to give more background on the numbers behind these examples.

[Christina Johansson]

Thank you, Duncan. I'm now coming to Page 12 with the order development of our group in the second quarter of 2021. Orders received of the group increased to clearly more than EUR 1 billion, reflecting very good organic growth of around about 16%. This was based on winning major contracts in the Technologies and E&M International business segments. But we have also seen a very robust development in the European maintenance markets.The order backlog grew organically by 9% to more than EUR 2.8 billion, and this despite the growth in revenue. The book-to-bill ratio stood at a good 1.1. This represents the third consecutive quarter of over 1 and paves the way forward for next year's growth ambition.Turning to Page 13. Group revenues swung back by nearly 30% to EUR 977 million compared to -- with a weak prior year quarter, which had been heavily affected by the COVID-19 pandemic and marked the low point of the last year.Coming to EBITA, we saw in quarter 2 a strong overall development. However, we still need in E&M International to have some patience, they have not yet fully recovered. The group, in total, achieved an adjusted EBITA of EUR 26 million after a loss of EUR 35 million in the prior year period. This year's quarter 2 figure corresponds to an adjusted EBITA margin of 2.6%. This was due to favorable effects from the efficiency enhancement programs implemented in 2020 and the resulting improved capacity management. The margin improvement is very encouraging, and we anticipate a continuation of this trend for the full year.Reported EBITA was also clearly positive at EUR 21 million, reflecting the significant improvement in special items from minus EUR 16 million to this quarter minus EUR 5 million, which mainly related to the harmonization of the IT landscape. For the full year 2021, we still expect a maximum of EUR 20 million -- minus EUR 20 million of special items.Coming to gross margin on Page 14. At 9.7%, the gross margin improved considerably against the prior year quarter as did gross profit, which grew to EUR 95 million.Adjusted SG&A expenses decreased slightly to EUR 70 million and was thus below the sustainable target level of EUR 75 million per quarter. The reduction in SG&A or the further reduction in SG&A was due to COVID-19-related effects such as continuing low travel expenses. The adjusted SG&A ratio measured against revenue was, this quarter, 7.2% and is thereby quite close to the target of a ratio below 7%.Turning then to our 3 segments and starting off with E&M, Engineering & Maintenance Europe on Page 15. We achieved substantial revenue growth at a very good margin level in this segment. Orders received increased by 3% organically to EUR 649 million compared with the prior year quarter. This segment had, in relative terms, less impacted by COVID-19 effects last year than the rest of the business. Significant growth rates of our order intake were recorded, particularly in Germany, Belgium and the Netherlands as well as in Northern Europe.Revenue increased by a substantial 36% to EUR 665 million, supported by growth in all our European regions. However, some COVID-19-related restrictions are still in place, especially in the North Sea offshore business. The book-to-bill ratio in the second quarter was 1, reflecting the increase in both orders received and revenue.Looking at the E&M International segment with North America and Middle East on Page 16. We see an encouraging order pipeline and order intake. However, we have to put a continuous focus on EBITA improvement here. Orders received increased substantially by 48% to EUR 199 million. Development in North America was flanked by the extension of a major long-standing maintenance contract. Orders received in the Middle East remained at prior year level.Revenue grew organically by 19% to EUR 143 million. Here, we have seen considerable FX effects mainly due to the changes in the U.S. dollar rate. The book-to-bill ratio in the second quarter was 1.4 and thus provides the basis for further growth going forward. Adjusted EBITA remained negative at minus EUR 7 million. Strategic measures, the adjustment of capacities, however, are increasingly showing effects.It should also be mentioned in this connection, in view of changed market conditions and business prospects, we decided to sell our shares in a joint venture in Oman. The transaction is expected to be completed in the third quarter of 2021 when we expect to receive a book gain of EUR 9 million. The cash-in of the purchase price in the amount of EUR 10 million we recorded already in June.The outlook for full year 2021 remains unchanged. A significant revenue growth is expected at E&M International and also a significant improvement in adjusted EBITA to a slightly positive result compared to the loss of EUR 21 million in 2020.Coming to Technologies on Page 17. The segment delivered a strong increase in orders received of organically 51% to EUR 169 million. This was largely supported by the project awards in the biopharma sector that previously Duncan described.Book-to-bill in quarter 2 was at 1.2. Revenue also grew organically by 36% to EUR 145 million. After a prior year figure of minus EUR 20 million, the segment's adjusted EBITA now reached EUR 7 million positive and was positive now for the fourth quarter in a row. As a result, the adjusted EBITA margin improved to a very pleasing 4.7%.We also confirm the outlook for Technologies in 2021. We anticipate significant year-on-year growth in revenue, and EBITA adjusted will improve to a clearly positive result after minus EUR 11 million in full year 2020.Turning to Page 18. Following the first quarter, net profit was again positive in the second quarter of 2021 driven by the improvement in EBITA. Net profit improved to EUR 13 million compared to minus EUR 60 million in the prior year quarter. The current quarter 2 figure includes a low level of special items, and it reflects a largely normalized [indiscernible] development as well as a margin improvement.In quarter 2 2021, adjusted operating cash flow at minus EUR 27 million and reported free cash flow at minus EUR 43 million, both were substantially below the very positive prior year figures. As already mentioned, this was, on the one hand, due to growth-related increased working capital requirements. On the other hand, the prior year quarter was supported by deferred taxes and social security contributions of more than EUR 90 million that have been mostly paid at the year-end 2020. Correcting for these deferrals, reported free cash in the first half of 2021 was on prior year level.Looking at the liquidity development on Page 19. Net liquidity, including IFRS 16 liabilities, improved significantly against the end of the first quarter 2021. This was due to the proceeds from the preferred notes for Apleona in the amount of EUR 458 million that were transferred to Bilfinger in May this year. In quarter 2, net trade assets increased in absolute terms to the level of EUR 514 million. DSO improved against quarter 2 2020 by 11 days to 77 days. DPOs were 65 days as [indiscernible] with last year.On Page 20, I would like to give an update on our slightly increased outlook for the full year 2021. We expect an unchanged significant revenue growth in financial year 2021. Furthermore, a substantial improvement in adjusted EBITA is anticipated. In light of the encouraging earnings development in the first 6 months of '21, the adjusted EBITA margin will now exceed the precrisis level of the financial year 2019, which was 2.4%. We expect it to reach approximately 3%, although revenue in 2021 is still anticipated to be significantly below the 2019 figure.The structural cost-cutting measures that we implemented with great agility in the second half of 2020 have been showing increasingly positive effects. We also anticipate a substantial improvement in our reported EBITA due to significantly lower expenses recognized as special items. The expenses for the restructuring measures implemented as a consequence of the COVID-19 pandemic and the volatile oil price development primarily impacted financial year 2020.Finally, looking at liquidity. Free cash flow is expected to be positive but below the prior year level. This despite a substantial improvement in EBITA. The reason for this are increased working capital requirements as a result of the planned revenue growth, the cash-out effect, the restructuring measures implemented in 2020 and a normalized level of capital expenditure.That brings us to the end of our presentation. Thank you for your attention. Duncan and I are now looking forward to take your questions.

[Operator]

[Operator Instructions] First question comes from Eric Lemarié.

[Eric A. Lemarié, Research Analyst]

I've got 3, if I may. First, so you mentioned investment in M&A and organic growth. What do you mean by investment in organic growth? Is it CapEx, CapEx in additional capacities, for instance? So is it R&D CapEx? This is my first question.Regarding M&A, what kind of additional growth do you intend to acquire in the -- I would say, in the next years or going forward through your new allocation policy?A third question regarding the costs which have disappeared with the pandemic. You mentioned the transport-related costs. When do you expect these costs to reappear in your P&L?And the last question, if I may, with the last report of the [ GIEC ], which was published this week, do you see -- or do you expect any new interest for nuclear projects?

[Christina Johansson]

Thank you, Eric. I think I'll start off and then probably Duncan will assist me also with some of the answers. When we are looking at organic growth and talking about investments in organic growth, I think it will be what you already said. It will be partly CapEx. It will be also some new skills. So it means investing in people. But it will also require maybe partnerships and joint ventures to develop new technologies in the way forward.And a big topic is, obviously, also for us the energy transition. And you can imagine that we also try to develop our skills when it comes to topics like hydrogenous projects and this kind of fairly new R&D topics. And that will require some investments also in organic growth.When we look at M&A targets, here, we are looking at partly enlarging our portfolio in specific geographic regions where we see that one or another bolt-on acquisitions would help the speed and the size where we maybe are not as big as we would like to be. But also in specific areas, we can mention, for example, biopharma where we believe that the skills we have today could be broadened and we could provide more services to our existing customers.So it is quite a broad range. We are talking about bolt-on acquisitions. The focus is Europe and North America. And as always, you have quite clear wishes on your list, but you have to have a certain flexibility when it then comes to look at what is available. But I think we internally have a very clear strategy of what we would like to do in the M&A area.Looking at the pandemic-related cost savings. When we talk about the SG&A, obviously, we have been traveling also in quarter 2 less than we expected. I think all of us hoped that the pandemic by this time of the year in 2021 wouldn't have the impact that we still have seen. So there has been less traveling, less amount of face-to-face meetings, which obviously save money.Will it continue? I think that we have learned to do things in a different way. But obviously, you need to have a good combination of face-to-face interactions and virtually. So I think it will come back to some extent but not to the level that we had pre the pandemic.Then the last question here in regard of nuclear -- new nuclear projects, I would like to pass on to Duncan.

[Duncan Hall, COO & Member of the Executive Board]

Yes. Just prior to commentary on the nuclear one, on the pandemic costs, we're averaging 250 people absent from work on a continuous basis. So we still have a bit of headwind there where people are either quarantining or recovering from infections. Hopefully, this will get better as the vaccinations roll out and we can get everybody back to work and operating as normally as possible.In nuclear, it's a very positive environment. As you're aware, Hinkley Point is moving on very nicely. We're in discussions on [indiscernible] to support them going through their funding process is well underway. We're in discussions in Finland. We're supporting Flamanville already and also have a number of opportunities in the French EPR-2 rollout program.So we are seeing this come through. As you know, they are not the fastest of moving projects. But when they do come, they are significant and go over many, many years. So still continuing positive environment and performing well in the nuclear area.

[Eric A. Lemarié, Research Analyst]

But you don't expect an acceleration of -- or an increase of the interest from politicals to access the nuclear development all over the world because it is a way to -- I don't know, this is a way to [ negate ] the CO2 emission.

[Duncan Hall, COO & Member of the Executive Board]

Yes, I fully agree, Eric. And you know the political aspect of nuclear investment as well. There's the French elections coming up quite soon, which will have a significant impact on hopefully releasing those investments. There's the funding issue, and we can all read about that in the press in the U.K. moving through. So I think there are some trigger points that can happen, that can then mean that they can accelerate onto the timetable that we can see. What we do know is once the funding is given, these projects will now move quicker because we have now started building nuclear power stations again in Europe. So that lead time will be shortened and they'll be more efficient in their building.

[Operator]

Our next question comes from Christian Korth, HSBC.

[Christian Korth, Analyst]

The first question is if you could maybe shed some more light on E&M International about the turnaround that you expect in the second half of the year. I appreciate you said that you are targeting a positive result, just asking for some color on this after we are, let's say, at minus EUR 12 million in the first half of the year.And also just to confirm that the profits you expect from the Oman sale, that they are not part of the adjusted EBIT. I just wasn't to make sure how I should read it in the presentation.The second question is probably more difficult for you to answer, but in the absence of anyone from the Supervisory Board being here, I just have to ask you what the current status is in terms of CEO succession. And with the latest announcements you made last night on the share buyback and the capital allocation, I just wanted to ask why these were done now. I would initially have thought that maybe wait for the next CEO and then decide on these things. So is it more like this is a general strategy and the new CEO has to achieve it? Or how should we think about this? I appreciate any answer you can give on this.

[Christina Johansson]

Good. Thank you, Christian. And let's see if we can get all the answers here. If I start off with the CEO search, I can only, to some extent, repeat what I previously said. The Supervisory Board has a search ongoing, and they will come back with an announcement as soon as they have come to the conclusion on that search. I can honestly not say how long time it will take. I am fully aware of the fact that they are very, very careful, and they -- I don't know if you can be 100% sure when you come with a new CEO that it will be the right one. But I think given the history of Bilfinger, they want to be as sure as possible that it will be a good solution.And in the meantime, I'm committed to continue to drive both these positions, CFO and interim CEO, for the necessary time. I think the most important thing for Bilfinger here, independent of me or independent of the new CEO, is that we are not losing any speed here and we are continuing on this transformation journey as fast as possible. Obviously, last year was a difficult year, not only for us but for many others as well. I wouldn't say it's a lost year because we used last year to a large extent to once more cut costs. But I think we are all very motivated here to continue on this journey, and now with the next step this year and then next year, we don't want to lose any speed. So -- and that is the most important thing for Bilfinger. And I think with myself and with the team around me and with Duncan, we try to do everything here to drive forward.The capital allocation topic, of course, you can decide to wait until a new CEO is coming. But as I said, I don't think Bilfinger can afford to lose any time here. And therefore, we decided that we need to be fast in making decisions. And given now that we received the money from Apleona in the quarter 2, we decided the Executive Board and the Supervisory Board that we wanted to drive this communication already now instead of the alternative to wait until we have finished this year. So it was a joint decision.I think a new CEO does not mean necessarily that he will completely change everything and have a completely new strategy. I think also Duncan and myself that joined in 2018, we have been fine-tuning that strategy that was already there, but it's not a completely new strategy. We believe that this strategy put in place makes sense, that it fits for purpose today, and then it's more about in the after COVID market situation to maybe adjust some things and set a bit of different priorities. But all in all, the Supervisory Board and the Executive Board are standing up for this strategy going forward.Then coming to your topic around E&M International. That is the most challenging segment for us. And I think it's important to keep in mind that the largest part of this segment is North America. It has been a challenging time. On one hand side, we know that many of the previous large projects that came to an end at the end of 2019 or in the early parts of 2020. We came in before the COVID in 2020 into the year with no sufficient order books. And then COVID happened, which didn't help us to gain order intake.In our markets in North America, in our industries, we have also clearly seen that the ramp-up after COVID that in Europe started to become visible from September last year, it's probably around about 6 months after Europe. And only this year in quarter 1 and quarter 2 we see an increasing willingness in North America to go ahead with projects, but also the pipeline has been improving recently and also the order intake, as you can see. It is the route we have taken and we see the right signs, but unfortunately, it will take some time until we see the real big move forward on the top line but also on the bottom line. So the target this year is to build pipeline, to build order intake and then take the next step into a clearly positive result next year.I think also, to some extent, the elections in U.S. in the later part of last year also contributed to a bit of a ramp-up at the later stage. Right now, we see a lot of these infrastructure projects coming through, but this was not visible in reality at the end of last year.

[Bettina Schneider, Head of Investor Relations]

Last question was the Oman business. Maybe I can answer that directly. This will be an adjustment. The capital gain like any kind of capital gains on disposals are in the adjustment line, so it's -- this profit is not part of our EBITA adjusted guidance. The guidance increase is purely operational.

[Operator]

Okay. Next question comes from Stephan Bonhage, Metzler.

[Stephan Bonhage, Research Analyst]

I have 3 questions on 3 different topics. The first one is if you can share your view on the inflationary environment in your end markets, which also affect your customers. Would you consider it as, for your business, whether as a headwind or a tailwind?Maybe also a second question, again, on E&M International regarding the order intake in H2. You mentioned a couple of things, but for me, it is not quite clear if you have a certain visibility on the order intake improvement in the second half of the year. I mean Q1, especially Q2, were affected by some positive onetime effects. And if you can give a clear commitment that you think that the order intake in H2 will clearly improve.And the third question is on the margin development in the second half of the year. You gave this updated adjusted EBITA guidance of 3%. I mean this would also imply that you are expecting a significant or a meaningful improvement of the margin in the second half of the year. So what are the main drivers for this margin improvement in the second half of the year?

[Christina Johansson]

Duncan, do you want to start with the inflation part?

[Duncan Hall, COO & Member of the Executive Board]

Let's start on the inflation. I'll talk about it in 2 aspects. There's people and then there's materials. On people, actually, we're seeing quite low inflation, obviously, in some areas, which is good for us. That means we don't have so much of a pressure on increase in the service element when we discuss those with customers on a year-end basis, and our efficiency gains can come through the bottom line benefits for both ourselves and our customers. So that's very much what you would see as a tailwind.On the material element where we are seeing significant price inflation, that is a challenge. We don't see -- it hit us too much because most of our material suppliers are actually European-based. We tend not to do the large main plant items in bulk steel and bulk pipe purchases, they're done by the customer. And they are a challenge for the customer. Where we are now looking to compensate that is we are putting it in the bulk of our contracts going forward linked to material indices to ensure that any significant changes, we are able to recover that as we go forward.So again, that would be neutral from our basis. What is a negative is the time challenge that it gives us, not just for ourselves with inflationary and delivery pressures that we've seen throughout the pandemic, customers are struggling on delivering materials, which is delaying projects, which is where we still have a little bit of a challenge on getting some project revenues actually materializing. And hence, that always puts a stress upon the end completion date, which is always a challenge. But that also brings opportunities.Just on E&M International, not going to get carried away with commitments, but we had some good order intake at the start of the year in the U.S. Those projects are now underway, and they're performing well. And we expect them to continue to perform well in half 2. They were below 20% in completion terms in half 1. So we expect that to come through.Revenue levels that we see in E&M International are reasonably secure from actually the order intake and order backlog we have. We really want to get our order intake improve for next year when we want to get back up to the levels and the levels of profitability that we expect from those particular areas. That's about as positive as that will get.Christina?

[Christina Johansson]

I'm smiling. I think we are careful when it comes to North America, but the last month -- I can only say that the last month, we have really seen an improvement in the revenue and the bottom line. So we already see it in reality. But it will take some time to get back to what we had in '19 here, both in top line and bottom line.Talking about the margin development in the second half. I think there are a number of factors. I think we should not forget that we also have a seasonality in our business and the second half is always stronger than the first half, which help us then to get better utilization of our people resources and automatically also a better margin. We have been driving hard here to the extent that we would like to have a little bit of seasonality, then a little bit less seasonality, but it is also a natural seasonality to some extent that many clients are planning in quarter 1 and then executing during the next coming 3 quarters. And then to some extent, in the last quarter year-end, they want to make the spending that they have budgeted. So we will not get away from that. That means that we will have more revenue in the second quarter and a better utilization. And also what I mentioned before, the monthly improvements in North America and that we recently have seen will help us in the second quarter. But also, of course, the portfolio mix that we have will also generate, as we know then -- we know the projects that will have a significant impact on the second half is to improve the operational margin and, obviously, also the EBITA margin.

[Operator]

Stephan Bonhage, does that answer your questions? Or do you have a follow-up?

[Stephan Bonhage, Research Analyst]

No, I don't have follow-up questions.

[Operator]

Next question comes from Craig Abbott, Kepler Cheuvreux.

[Craig Abbott, Head of Mid and Small Cap Research, Germany]

Two questions, please. First of all, E&M Europe. You mentioned that you have been benefiting from the turnaround, which is higher margin. So -- and clearly, we saw that in second quarter with a 6% margin. And you suggested this should continue going into '22. But structurally, I'm just wondering how we should be thinking about that 6% margin, or say, 5% to 6% level as to how sustainable you might see that level going forward? Or is it just being a little bit temporarily supported by some short-term factors?Second question is specific, but I would just like to understand a little bit better. You talked to the case study on the feedstock plant for the electric vehicle battery production in Finland on Slide 9. And I realize this is currently a small niche area but one with a lot of growth potential. And I'd just like to understand what type of services exactly is Bilfinger providing here, i.e., what is your USP in this area that might enable you to win future tenders in this area as the segment develops?

[Duncan Hall, COO & Member of the Executive Board]

Thanks, Craig. The line was a little broken at times there. So I'll try and answer as best as I can, please. At the end, if you can put me back on the right track if I depart.So on turnaround, yes, we literally saw probably 50% of the turnarounds in 2029 -- 2020, sorry, postponed, and they've been hung over now into '21 and '22, with '22 actually even seeing a bigger increase than '21 in terms of those postponements. So we're certainly expecting the revenue to continue in that. And we're very actively ensuring we're working with our customers to schedule those turnarounds to ensure we can deliver the resources in that and also provide additional resources from other areas on a blue collar level.In terms of the profitability of those, we do well on those projects. That's because these are the highest-risk projects that customers have when their plant is off. They obviously have to look at bringing in additional material suppliers to supply their customers, and so they want these coming back on time. They're never under-resourced, they're never under-managed. And we deliver these projects consistently year-on-year, and the trust developed between ourselves and our customers means we get booked very early. We don't have a lot of discussion around contract terms. The bulk of them are incentivized, reimbursable contracts. So we believe this is a very, very sustainable area for us that we will continue to develop. We're driving some efficiency projects to improve our performance even more and also going through a training program to ensure we can put more resources into this area. It's a good position for us, and we're going to maintain that. And by the way, it is universal. It is not just particularly in one area. We do turnarounds right across our business, but our strongest area, as you identified, is E&M Europe.In battery plants, is it a niche area? We are providing a lot of our traditional services within there. The scale of these projects fits nicely. They are not massively large projects. So they're generally sub EUR 100 million. And we're working with customers that don't have a lot of project experience. So to be able to have somebody like us in there that can deliver an engineered, fabricated and construction set of services, including mechanical, electrical and all the ancillary scuffled insulation painting, works very well. They don't have to manage the interfaces and they get a very efficient product to the end.We are working in a number of areas while in the engineering front end to come up with modular solutions to take those through. But we don't take process risk on these. So we do not want to have performance of the plants linked to what we do. We're taking engineering risk and delivery risk, which is our normal areas.The USP is we are building a strong reference case and a strong reputation with those customers. The customers are very consistent, yes? We are not seeing a wide range. There's a small number of customers that work in this area, and we're developing very good relationships to them. Is that fair?

[Craig Abbott, Head of Mid and Small Cap Research, Germany]

Absolutely. I think you understood my questions very well.

[Bettina Schneider, Head of Investor Relations]

[Operator Instructions] There are no further questions, so we conclude today's call. Thanks for participating. We wish you all the best. Enjoy the rest of the summer, and we'll speak to you again latest in November. Have a good day. Bye-bye.