Bilfinger SE

XETRA:GBF

Earnings Call Analysis

Bilfinger Q2 2024: Strong Order Growth and Positive Outlook

Bilfinger reported a robust Q2 2024, with a notable order intake exceeding €1.5 billion, reflecting an organic growth of nearly 20%. Revenue increased by 3% organically, reaching over €1.3 billion. EBITA rose to 4.6%, up from 3.9% in the previous year's Q2, excluding special items. The company confirmed a full-year revenue outlook of €4.8 billion to €5.2 billion and an EBITA margin of 4.8% to 5.2%. A significant acquisition of Stork from Fluor Corporation contributed to these positive results. Earnings per share jumped from €0.79 to €1.28, and free cash flow was positive at €26 million, up from a negative €46 million last year.

Strong Growth and Positive Financials

In the second quarter of 2024, Bilfinger reported an impressive order intake exceeding EUR 1.5 billion, reflecting a remarkable 20% organic growth year-over-year and nearly 40% on an organic quarter-over-quarter basis. The company generated revenues of just over EUR 1.3 billion, indicating a modest organic growth of 3%. Furthermore, they reported an EBITA margin of 5.4%, up from 3.9% in the same quarter last year, showcasing solid operational improvements. Notably, earnings per share surged from EUR 0.79 last year to EUR 1.28 this year.

Focused on Sustainability and Efficiency

Bilfinger remains dedicated to enhancing safety in operations, reporting positive trends in key safety indicators. The company is actively adapting to market demands, particularly in energy, chemicals, and biopharma sectors, aiming to enhance operational efficiencies and foster sustainability practices. Their recent development of a digital building energy assessment tool exemplifies their commitment to providing clients with cost-effective solutions that also accelerate speed.

Guidance and Market Outlook

Bilfinger reaffirmed its full-year 2024 guidance with expectations of revenues between EUR 4.8 billion and EUR 5.2 billion and an EBITA margin between 4.8% and 5.2%. This outlook demonstrates confidence in the stability and growth potential across all market segments, particularly due to the integration of the recently acquired Stork entity, which is anticipated to enhance both order intake and service capabilities.

Segment Performance Insights

The E&M Europe segment saw a significant contribution from the Stork acquisition, with organic orders increasing by 19% and overall growth hitting 48%. They reported strong revenue growth of 2% in this segment, alongside an EBIT margin improvement to 5.4%. The U.S. international business, after facing prior declines, reported its first positive growth in several quarters, highlighting a strategic turnaround. Meanwhile, the technology segment showed strong order intake growth of 19%, with revenue increasing by 2% in this niche market.

Focus on Frame and Service Contracts

Bilfinger is shifting focus towards increasing the share of frame and service contracts, which fosters predictability and higher profitability. The management reported a reduction in project share from 44% to 33%, indicating progress towards their target of reducing project dependence below 20%. This transition is expected to enhance stability and customer relationships, resulting in more streamlined operations.

Cash Flow Management

The company's free cash flow showed a remarkable recovery, turning upwards to EUR 26 million in Q2 compared to a negative EUR 46 million last year. Year-to-date, the cash flow stands at EUR 50 million, supporting their guidance of EUR 100 million to EUR 140 million for the entire year. Efforts to reduce working capital consumption are key factors contributing to this positive cash flow turnaround, expected to further stabilize in the latter half of the year.

Earnings Call Transcript 2024-Q2

[Bettina Schneider, executive]

Good afternoon, ladies and gentlemen, and welcome to Bilfinger's Second Quarter 2024 Earnings Call, streamed today from Manheim. My name is Bettina Schneider, and I'm joined by Thomas Schulz, our Group CEO; and Matti Jakel, our group CFO. We start now with a presentation on the Q highlights and financials, and then open up the call to your questions. You can ask your questions via phone or via chat in the webcast. I'd like to inform you that for the presentations, all participants are in a listen-only mode and that the conference call is being recorded. With this, I hand over to Thomas Schulz.

[Thomas Schulz, executive]

Thank you, Bettina. Hello, everybody. I would like to welcome you here on the first highlights slide for a quite good quarter 2 2024. We received more than EUR 1.5 billion order intake, which is an organic growth of 20% and close to 40% on organic growth in the quarter. The revenue was a little bit more than EUR 1.3 billion, which is a 3% organic growth part. When we look into the EBITA, we had a reported EBITA of 5.4%. If we take the special items where Matti, our CFO, will go more into details.



If we take that away, we are 4.6% versus 3.9 last year's quarter 2. Our free cash flow showed again a positive development with a EUR 26 million plus versus a minus EUR 46 million last year. Our earnings per share jumped from EUR 0.79 to EUR 1.28. Generally, the markets are stable to positive in all our target markets, and we finalized and closed the stock acquisition out of the Fluor Corporation on 1st of April. We confirm the outlook, the revenue of EUR 4.8 billion to EUR 5.2 billion and the EBITA of 4.8% to 5.2%. Before we go into the market, we would like to have a word regarding the safety. Safety is utmost important for us. And as you know, we report to the outside world to very important KPIs. And in general, if we compare with the industries where we work in, we are actually on a quite good level. You see on the TRIF that we reduced from 1.41 to a grade 1.01. And on the LTIF, from 0.38 down to 0.30. Both developments were in the right direction over the year.



But quarter-on-quarter, we actually saw going into the more worse for the safety. We took all the necessary actions, and doing so to keep our quite good performance against industry performance. Target is here that we have a 0 accident and 0 in everything what has to do with the safety part. Out of that, into the market, we, as Bilfinger, are a great reflection of all the process industry in all the 3 areas where we operate. That means in the U.S., Europe and the Middle East. As you know, we are focused on 4 core markets. And I would like now to talk about the industries that means our customers and how their market develops.



Let me start with energy. You see on the left side a graph about the production index for whole Europe, for whole Middle East and North America, which includes Mexico and Canada. And the base here, the index here is pre-COVID. That means the year 2019. And you see that in energy, still we are 4% below the pre-COVID situation in the production index. But it's a very good market for us. It's good and stable outsourcing potential where customers are looking for companies like us to help them to improve their efficiency and sustainability. The next part on the left down is the chemical and the Petrochem industry, which makes roughly 25% of our top line. Same production index versus the regions and the year that means pre-COVID. There, we are roughly 2% below that what we had in 2019. That industry is heavy process industry and the outsourcing potential, which is important for us as Bilfinger, is good and increasing as we said on the Capital Markets Day.



Important to mention here is, of course, regarding all the discussions about the German industry and chemical industry performance. If we would take Germany out of that index, out of the production index, actually, that index would be 2% higher. Out of that, on the next page, we have our 10% of the top line, core industry, pharma and biopharma. And as you see, this is the real outperformance in all the industries where we work. We are already more than 40% above the base year 2019. It is really a growing and expanding industry, and we see the localizing of production units throughout all the regions where we are. The outsourcing potential is good and increasing, and benefits us quite a lot.



Last industry I would like to highlight is the oil and gas, makes roughly 20% of our top line, and it is roughly on the same level this year as it was in 2019. We see there an ongoing good and increasing outsourcing potential. Important here is, of course, as we all know, the oil price, but we see clearly that the investments into OpEx, in aging existing assets to make them more efficient and more sustainable is ongoing. Out of that, we look into our figures. The first thing, what we would like to highlight here is the well-known from us, from Bilfinger, the well-known so-called opportunity pipeline. The opportunity pipeline shows the development of the market, our end market where we can bid on. And you see that we show here from April 2022 to the quarter 2 this year, and it's indexed to the April 2022.



If you compare the quarter 2 in '22 to the quarter 2 in '23, you see that the quarter 2 in '23 was a little bit down regarding the opportunities versus the year before. But this year, we are quite up. And that shows and gives you actually the confidence when we say our market is stable to positive. That is what we can prove with here. Our orders received actually went up quite significantly up to EUR 1.5 billion roughly. In this EUR 1.5 billion, more than 50% frame and service contacts received actually went up quite significantly up to EUR 1.5 billion roughly. In this EUR 1.5 billion are more than 50% frame and service contracts and a little bit more than 30% projects and, of course, a stake from the acquired business, the former stock entities. This is quite an improvement versus last year, but if you take the first half of the year in 2023 and the first half of the year in 2024, you see that our development is roughly flattish.



Then into the order backlog. The order backlog increased inorganically 17% and organically 3%, which gives us a clear reflection on that what we see in the market. We have a good run, our strategy for offering clients higher efficiency and more sustainability works actually quite well out. Out of that, into some examples. We choose this quarter, 3 examples with the first one out of the chemicals in Austria, it's about LAT nitrogen. The important part of that portfolio expansion, what we got from the client is actually that we did it together with the newly acquired former stock activities and now building activities. We had already in the quarter 2, quite a lot of common success into existing and new customers for Bilfinger where we would most likely not have the same chances without that M&A.



In the middle part of the slide, you see out of U.S., for our colleagues in North America, in order from a global plastic manufacturer. It is actually a 3 years maintenance framework contract, and it hits really the core of that what we do in Europe to piping and ISP. And it shows that our turnaround in U.S. and going into growth is taking more speed. On the right side, we see biopharma, a biopharma contract out of the segment technology, and the biopharma contract will be built in North America, in U.S., and it proves that we, with our biopharma technology in that case, that manufacturing of bioreactors is working quite well globally, too. Out of that, from selected orders into innovation, we are always proud to show what we as Bilfinger, do step-by-step, daily and very much grips and customer-related innovations. This time, it's about beat.



It's a digital building energy assessment tool. The background of that is that a lot of our clients, if not all, in the Western world have to make so-called energy audits. And the energy audits, especially in Europe, they are differently nation by nation, differently organized, and you can imagine how difficult it is for a customer to bring that all the time again and again. And we as Bilfinger offer to our clients, the so-called digital automated monitoring system where we are able to make the audit, the energy audit on industrial facilities, not only significant cheaper to do it, actually faster and repetitive. And at the same time, the things what we identify, we can immediately offer towards the client as efficiency and sustainability improvement. Overall, again, another innovation from building up to make the world, the industrial work in the process industry, all work in the process industry, more efficient and more sustainable. Out of that, we go further into the figures and now to Matti, our CFO.

[Matti Jakel, executive]

Thank you, Thomas. Also from my side, a warm welcome, really warm in Manheim today. In quarter 2, we show progression on all KPIs supporting the full year guidance that we presented at the Capital Markets Day about 2 months ago on June 12. As Thomas said already, revenue in the second quarter of 2022 reached EUR 1.3 billion. This includes about EUR 150 million revenue from the former stock entities, and I will talk about those effects when I come to the segment E&M Europe. Organic growth rate at 3% and overall, 16% quarter-over-quarter compared to quarter 2 2023.



Foreign exchange fluctuations had no impact in the second quarter. So, difference between organic and absolute relates to the inclusion of the former stock entities. The book-to-bill ratio as a growth indicator reached 1.16%, quite a sizable number in the second quarter, driven by the high order intake of EUR 1.5 billion overall for the group. Profitability in the second quarter, 5.4%, EUR 70 million, including a badwill recognition of EUR 10 million, reducing or eliminating that one. The underlying profitability was 4.6%. Again, a nice progression from last year's second quarter, but also from the first quarter 2024, where we reported 4%. EBITA margin. We have seen improvement in the gross profit and gross profit margin, 10.7% after 10.4%, also progression here due to operational excellence and efficiency program at work in Bilfinger. The SG&A quarter increased slightly to 6.6% due to the inclusion of the former stock entities. The underlying figure here is 6.4%. So again, an improvement over quarter 2 2023, where it was 6.5%.



Looking at net profit and earnings per share. Starting off with the EBIT of EUR 70 million in the second quarter, the financial result of EUR 4 million. The taxes amounted to EUR 17 million. That's a tax rate of 26%. If we look at quarter 2 2023 at EUR 8 million there, the tax rate was only 21%. So, this translates into EUR 48 million net profit for the quarter, a 62% increase over 2023 where the net profit was EUR 30 million and divided by the number of shares where we have seen no change between last year and this year from EUR 0.79 per share to EUR 1.28 in the second quarter of this year. Another very good performance in cash flow and working capital. Second quarter free cash flow, as we measure it, was a positive EUR 26 million after the first quarter, where we had a positive EUR 24 million. So year-to-date here, we're at EUR 50 million, also supporting our full-year guidance of EUR 100 million to EUR 140 million.



The improved cash flow is a result of our higher earnings and also a lower working capital consumption, which is helping us reducing the intra-year seasonality further as we have outlined this as a target for ourselves during the Capital Markets Day. Special items here shown at minus EUR 13 million. They relate mainly to the payout of the efficiency program, which are occurring and will occur in 2024. At the Capital Markets Day, we announced or presented a KPI, net trade assets over revenue. We did make a small change to the definition. Now we're looking at 3 months average rather than a 12-month view on that one. The advantage here is that there's better visibility on progress in that KPI. And looking at the last quarters, the second quarter in 2022, that KPI was 12%. In 2023, it was 11%. And in 2024, it's 10%. So, you see progression. And just as a reminder, our target ratio here is 8% in the midterm as discussed and presented at the Capital Markets Day.



Taking a look at net liquidity. So, we have reported in quarter 1, the purchase price that was done in 2 parts. For the Stork acquisition, so EUR 29 million was the liquidity effect in the first quarter. Now we have a positive effect of plus EUR 21 million. There was a second portion of the purchase price to be paid, but we also assumed net liquidity with the acquisition that gives you the net effect of plus EUR 21 million. We also assumed leasing liability of EUR 43 million. So, the main events in net liquidity in the second quarter were obviously the dividend payment, but also M&A of the former Stork entities. Financing targets, we're doing quite well here. So, the cash flow protection, where we said more than 50% stands at 90% at the end of June 2024 and the dynamic debt ratio is at 0.85 versus a target of less than 2.0. Also here, we had the effects from the dividend and the Stork acquisition that did play a bit of a role in the numbers as they came out here.



Both ratios are leaving us quite a lot of headroom for further activities in our business. From the group into the segments, as I said earlier, the Stork acquisition only plays a role in the segment E&M Europe. There is a U.S. portion that is still pending where the closing is supposed to happen in the second half of 2024. And once that has happened, we will then show either quarter 3 or quarter 4, depending on timing, the M&A effects in there or first-time consolidation effect here. Orders received in Europe organically underlying plus 19%, together with the Stork acquisition, which contributed EUR 195 million in orders received just in the second quarter, the growth rate comes up to an impressive 48%.



Revenue grew by 2% organically in our business, including EUR 150 million from the former Stork entities, the absolute increase is 22%. On the profit side, we achieved EUR 60 million for the second quarter, 6.4% profitability, removing the badwill, which was recognized in this segment. The underlying profitability is 5.4%, an improvement of 0.8% over the second quarter of 2023. Thomas showed you some interesting figures on production in our industries, and that's reflected in the revenue split. There's a bit of a shift between chemicals, petrochemicals, on one hand side, and pharma and biopharma on the other hand side, both in orders received, but more so in revenue.



Looking into our international business in the Middle East and in North America, absolute and organic growth do not differ here. So, the same numbers. No impact from the Stork acquisition as yet. Growth rate on orders received $27 million at 27%, excuse me, with a book-to-bill ratio of 1.06. So still indicating good growth. The revenue grew by 9% from EUR 171 million to EUR 185 million, and it's the first time in several quarters that our U.S. business has been showing a growth rate. After the strategic changes that we implemented there where we have seen declines for quite some time, this is a very positive signal. And that's also reflected in the profitability. We had a small loss in 2023 in the second quarter. Now it's the fourth consecutive quarter where we are reporting a profit in our international segment, $4 million or 1.9%.



And lastly, segment Technologies. Also, strong order intake growth, 19% to EUR 259 million, with a book-to-bill ratio of 1.47%. So, we had some significant order intakes, particularly in the Pharma and Biopharma sphere. Revenue grew by about 2% to EUR 176 million. Also, we're seeing here a bit of a shift between the industries that we are serving a bit less in chemicals and petrochemicals, and an increase in energy as well as in Pharma and Biopharma. Profitability, $9 million or 5.2% compared to $1 million and 7.1% in the prior year. That reduction has to do with very typical fluctuations that are order and contract-related. As you know, there's a life cycle in all those contracts where there's early phases with low revenue and low-profit recognition. And once they ramp-up and are in full swing, and it really depends on how those phases fall within a year and between the quarters, you will see some of those fluctuations. But that is all as we expect our business to run. And with that, I turn it back to Thomas.

[Thomas Schulz, executive]

Thank you, Matti. So, now to the outlook for 2024. Actually, no change to that, what we said on the Capital Markets Day. When we look from the right side, you see the year-to-date 2024, we are close to EUR 2.4 billion versus close to EUR 2.2 billion last year. At the same time, our guidance is 4.8% to 5.2%. On the EBITA margin, we have a 4.3% without the special items, as Matti explained, versus 3.0 last year, which is quite an improvement. And of course, we stick to our 4.8% to 5.2% EBITA margin for the full year. And in the free cash flow, we delivered a EUR 50 million plus versus a minus EUR 73 million last year. And with all of that, what Matti very well explained, of course, we stick to our EUR 100 million to EUR 140 million on the free cash flow.



To summarize it again, we had quite a good quarter 2, especially the order intake with more than EUR 1.5 billion was quite amazing, quite good. Revenue, plus 3% organic growth, our EBITA on 4.6% without special items. Free cash flow positive again. We see a stable to positive market in all the markets. We closed Stork or former Fluor Corporation entity Stork 1st of April, our earnings per share jumped to 1.28, and our outlook is confirmed. Thank you, and back to Bettina.

[Bettina Schneider, executive]

Yes. Thank you very much. [Operator Instructions]. First question comes from Craig Abbott, Kepler Cheuvreux.

[Craig Abbott, analyst]

Yes. I have 3 to begin with. And there's all 3 of it more coal oriented at this time. First one, just looking at Stork. I was just wondering, you had a very strong order intake book-to-bill, I think, 1.3x 195 million figure. I just wondered because we're looking mapping out the next quarters. Were there any special factors in that? Should we expect a more say, more normal type of book-to-bill for the next couple of quarters? That would be my first question.

[Thomas Schulz, executive]

Yes, it was a special quarter. Not only the orders we received, the product mix was quite good, too, as we saw the number of EBITA, and of course, the effect -- the former stock entities and the Bilfinger original group together was quite competitive in a lot of smaller deals, too. So, what we see is, as we guided for, and I have to say that the order intake, what we got in quarter 2 when we look up to the end of the year is not changing our view on the overall guidance.

[Craig Abbott, analyst]

Okay. Thank you. Speaking of order intake a bit. Now I'm at the group level with my second question. I mean, you showed this very kindly a chart with the opportunity pipeline. So, you've kind of already answered my question, but I just wondered if you give us a feel for how -- for what you're seeing in terms of your order pipeline, it's likely to materialize over the next -- the last 2 quarters of this year? That's the second question.

[Thomas Schulz, executive]

Yes. First, when we look into the opportunity pipeline, it is not only as we see how the -- our customer market, our end market develops in general, it is actually our capability to offer more and more efficiency solutions towards the clients. And based on the pressure of what they have in Europe, mainly negative pressure that they have to save costs and quite a lot of them look in restructuring. Others are looking into expansion from a geography point of view, Middle East, North America and some industries like Biopharma in Europe too.



These both customer groups, as we call the ones under pressure, the other ones with the expansion, they like to outsource more and more. And that drives actually that over 2 years, you saw that we have in the middle, roughly 14 index points higher in the quarter 2 this year as an opportunity package versus 2 years ago, which is quite a good development when you look at the same time about the development of the production indexes, which are besides Biopharma, just a little bit below that what we had in 2019.

[Craig Abbott, analyst]

Okay. So, we could expect that to also start to crystallize in the next couple of quarters?

[Thomas Schulz, executive]

Yes. And what we can say is that it is already built into our outlook, and it fits very much into that what we said on the Capital Markets Day that we see for us, a 4% to 5% growth annually in the midterm targets.

[Craig Abbott, analyst]

Okay. That's very helpful. My third final question for now. Matti, is more for you. It's just if you could maybe help us map out in both directions, likely special items that you're expecting to book over the last 2 quarters of this year. Thank you.

[Matti Jakel, executive]

In the first quarter, we did see special items mostly related to the Stork acquisition. The EUR 10 million is a net effect of everything. But the other effects that we have seen and they are small in nature, did really level out. There is more badwill recognition to come as we keep going through the details of the transaction and as we will close the U.S. part of -- the U.S. portion of the Stork entities in the Stork business. We also will be recognizing integration cost and restructuring costs. And our assumption has been and continues to be that the net of badwill recognition and restructuring and integration costs will also even out. So, the full impact should be around 0 for the full year in 2024.

[Craig Abbott, analyst]

Okay. Did you expect to be completed with all the integration and restructuring measures.

[Matti Jakel, executive]

Probably the measures will continue into the early part of 2025, but recognizing the expenses by way of provision will most likely happen in 2024.

[Bettina Schneider, executive]

Next question comes from Gregor Kuglitsch, UBS.

[Gregor Kuglitsch, analyst]

Can I ask on cash flow, you had a very good half. If I look at trailing 12 months, and maybe that's not the right way to do it, but your free cash flow is more than EUR 240 million, but you're guiding EUR 100 million to EUR 140 million. So, I appreciate the sort of change in seasonality and whatever. But can you just give us an idea of what's sort of happening in H2 to get us back down to that sort of to within the guidance range? And then maybe related to that, do you think you're already going to be a, let's say, 10-ish working capital to sales or net trade assets as per of sales this year? That's my first question.



The second question, I mean, you kind of answered it on the order intake. I just want to check that there's nothing sort of one-off in nature in the second quarter order intake. You sort of called that out last year, that unwound in Q1. Now you had a really strong quarter again. Is there anything to call out as a large contract or anything to mention? And then maybe final question. I appreciate you don't want to change your guidance constantly, but with only half a year to go, that's like a EUR 40 million range. I want to understand, do you think you're tracking the bottom, the mid or the high-end of that range?

[Matti Jakel, executive]

Gregor, is the last question also relating to cash flow?

[Gregor Kuglitsch, analyst]

So, the last one is relating to profit to EBITA. So, I think if we move to play out EUR 230 million to EUR 270 million. Right? I want to understand, do you think your passing stand today, which part of the range are you tracking at.

[Matti Jakel, executive]

Okay. Let me try to answer your questions. The first one. I'll start with the first one. Yes, we did have a good first half of 2024. What we have seen in the past is that real, we all call it the bathtub, where we go cash negative for the first 6 months, 7, 8, 9, sometimes 10 months, and then we have a stellar performance in the last 2 months of the year. We want to certainly flatten that out and hopefully have no bathtub anymore, which is where we're looking at right now.



But obviously, that would -- that does push cash flows that we have seen formally in H2 into H1. So, that's a bit of the principle that's underlying this year's performance. We also have cash out for special items. And in the first half, it was roughly EUR 20 million. And in the second half, we expect about EUR 35 million. So, there is more to come than we have seen in the first half. I think that hopefully does explain a little bit how we are steering the business going forward. And we've seen quite some progression in 2024 over 2023 and 2022 in sort of moderating the intra-year cash flow seasonality. Working capital consequently would be around the 10-ish 10 percentage at the end of this year. If I sort of convert what I've just said on the cash flow, that would then run out with the working capital in that range. So, I think we're quite well under way, make some more progress there. Order intake. I think Thomas will respond.

[Thomas Schulz, executive]

Yes. I take that. Hi, Gregor. When you compare the quarter or the first half of the year this year versus the first half of the year last year on the order intake, it's flattish. It's more or less the same. The easy to show, actually, we had last year a weak quarter 2, and we had this year a weak quarter 1. And last year, we had a strong quarter 1. And this year, we have a strong quarter 2. So, when we look into the order intake, we think it will be a typical normalized year for us. And we don't foresee huge one-off big project coming for this year. Then regarding the guidance, regarding the profit, we have a range of 4.8% to 5.2% what we gave a few weeks ago, and we stick to that. So, we see us in that range. Of course, in all the guidance is what we give, the main target point is like in darts, the 10, which is the midpoint. So, from our point of view, there is no -- we have no information to change that view, not up, not down.

[Bettina Schneider, executive]

Thank you very much, Gregor. Now to Michael Kuhn, Deutsche Bank.

[Michael Kuhn, analyst]

Yes. Two on margins. Firstly, on Stork, there, you gave some key figures, EUR 150 million revenue contribution and EUR 6 million EBITA, just to reconfirm that this is excluding any one-off. If yes, that would be an offset margin. Is that kind of a run rate Stork is already on? Or would that be, let's say, too early to tell? And would the U.S. business be on a similar margin level. And just to get that clear again, what is the roughly remaining size top line life to be consolidated from Stork? That's the one. And the other one is on technologies that you mentioned that the lower margin is a function of, let's say, projects being in a different phase. Would you expect, let's say, a bigger share of projects being in a more favorable phase in the second half of the year, and thereby, a better year-over-year margin development?

[Matti Jakel, executive]

Thanks, Michael, for your questions. So, the Stork business did perform better than what we expected during the acquisition phase. I have to push the microphone. Sorry. Yes, Stork did perform better than what we had seen during the acquisition and the due diligence phase, the 4%. But we all know that the first quarter, after first-time consolidation, there is effects in there that are onetime effects. So, if you call this, the run rate is a bit premature, and we will see the second and the third quarter -- or the third and fourth quarter of the year. If and how this is holding up, as Thomas said, it's really fun to work with these people. They have known each other, our people and their people for quite some time. So, it's really easy getting along, and there's a lot of openness there. So, we hope that this is the run rate, but it's too early to say and confirm that this is the run rate. We're really happy with the first quarter with them.



The U.S. business is on similar levels. Just for a reminder, we're looking on the revenue scale of a low 2-digit million-euro figure for revenues that we will be acquiring on an annual basis. So, whenever that closes, there will be a rather small revenue and profit contribution in 2024. On technologies, as I said earlier, it really depends on which phases the contracts are in. So, we have seen a bit of a margin drop there, and that should recover in the second half of 2024. Our outlook for technology is 5% to 5.5%, and we're well on the way to get there.

[Bettina Schneider, executive]

Thank you very much. Michael, do you have -- are you fine? Or do you have a follow-up?

[Michael Kuhn, analyst]

I'm fine. Thank you.

[Bettina Schneider, executive]

Okay. Thank you. So, I will now read out loud the question from Nicolas Demeter out of the chat. One of the targets mentioned during the Capital Markets Day was to increase the share of frame and service contracts in the medium-term. Do you see already some signs towards this goal? Is there evidence of a shift in the existing order backlog?

[Thomas Schulz, executive]

Yes. Thanks a lot, Nicolas, for the question. Yes, we see evidence because our standardization process, what we have. Standardization in the products what we offer, standardization in the contract, standardization as we approach customers already start to pay off. And you will see more -- and you will see more and more that we sell the same service, exactly the same service to several customers, which is then actually a product and not a project. Our goal to go significantly below 20% project share is on track. But we need more time to show it as a shift, percentage shift in the figures, not only in the order intake, of course, in the order backlog, too, but the first signs are there. Last year, in quarter 2, we had we a lot of explanation with nuclear and so on, quite a high share of projects was around 44%. This quarter was 33%. Please don't expect next quarter 22% because that would be a little bit too aggressive, but we definitely look in to drive our product agenda more and more.

[Bettina Schneider, executive]

Next question from Nicolas. My question concerns the E&M Europe segment. Could you provide a bit more light about the new orders in the oil and gas sector? Specifically, are these renewals of existing contracts that are currently expiring and being extended or have additional contracts being secured? From which area do the new orders originate? Is it more in oil or more in natural gas or something else? What type of contracts are these?

[Thomas Schulz, executive]

Yes. You will understand that I will not go very much into details because then I need another hour, and then Matti looks very angry to me. Yes, we get new orders too. But we are with most -- or we are actually with all the bigger ones, bigger customers already. And to renew contracts is not that we do exactly the same as before. We add always other items, other products of efficiency and competence into it. So, no matter that we are partly with some of the clients working for 30, 40, 50 years, we actually, when we renew, it's a kind of a new offering what we give to them in the package of an ongoing, for example, maintenance and turnaround framework. If we then look into the different areas, if it comes to oil, it's, of course, especially the Rotterdam and the Dutch, as well as Scotland, Denmark, Norway area, where we are quite well established with our services and with our special competence what we can offer here. When we look into the natural gas, you know that there is a lot of movement in that market in itself. You have the gas market per se, then you have the LNG coming.



You have the hydrogen part. You have carbon capture. You have nitrogen. You have quite a lot of different things. And we, with our core competence in piping and dealing with all kinds of liquids and gases, and especially complex ones where we have our big, big competence gives us a very wide field to offer more. On top of it, we have a lot of debates in Germany, more debates in other countries. More investments about improving the infrastructure of these, let us call it, gas and liquid related supply, no matter if it's chemical products, if it's energy, if it's anything else. So, when we look into it, as I said, to the colleague before, we look that we offer more and more standard way of working. It makes it easier for our clients. It makes it easier for us. And actually, we go out of that, let's say, all time a new invention project type of contracts. We go more into product sales. And that is, for us, significant less volatile, higher profitable, and we know that we have very by far stronger customer relations out of it.

[Bettina Schneider, executive]

The last question from Nicolas also referring to the E&M Europe segment. You mentioned that the revenue share from the chemicals and Petrochem sector has slightly decreased. Are these early signs from the industry that plans are being closed due to the unattractiveness of the location? If I heard correctly, these changes can also be seen in the order backlog. What are you hearing from the industry? What do you think about this? And I would be happy if you could give a little update to this market and the sentiment here.

[Thomas Schulz, executive]

Yes. To give an update, you have to see the world in -- for Europe, a little bit looking two-sided. You have Europe actually performing quite okay versus Germany underperforming. When you look into -- when you listen to our clients, what they all complain about is the involvement of political decisions and an unbelievable bureaucracy. In Germany, you hear that several notches higher in the tone because bureaucracy in Germany is significantly bigger than anywhere else in Europe, most likely anywhere else in the world. When we look into that, what we see in the market, of course, especially Germany based on higher energy costs, political decisions and other things like bureaucracy, lack of competent labor and so on, they are fairly much under pressure, and we see that plants are getting shut down. You have the same information as we have there. But that's the big part for us as Bilfinger. We offer to clients when they are under pressure, under cost pressure, under any kind of pressure support with higher efficiency. We can take over things easy. We have a lot of competence; we have competent people available. For us, it's a good outsourcing market as we call it.



So, from our point of view, we are feeling -- I can't say comfortable because slightly negative environment is not comfortable, but we see a lot of business opportunities to support our clients. On the other side, anytime lower production index, a lower production level in some areas in Europe, like Germany in a few years, will of course, trigger then less maintenance work for us to do overall. But we offer more, so we take more share of wallet of the clients. And second, we have other parts of the industry like energy, where we need more and more people to go in. And as you know, 80% of that what we do in any industry is more or less the same, 20% is industry competence. So, out of that, we can shift people towards other industries, too.



Overall, answered, we don't see in Europe that big shift out of chemical industry and Petrochem. We see they're regionally different. We see Bene performing, Belgium and Netherlands performing very well in that sector. Germany under pressure. And we have a lot of opportunities to move people and businesses and offerings into other industries. So, for us as Bilfinger, it's actually a stable to positive market sentiment.

[Bettina Schneider, executive]

Okay. So, we have one question left now going to Christoph Dolleschal, HSBC. [Operator Instructions]. So, Christophe, the line is yours.

[Christoph Dolleschal, analyst]

Yes, thanks for that. A couple of follow-ups, starting with the order intake. So, the order take, I understood that was -- can we say there was a seasonal shift between Q1 and Q2, i.e., we basically recovered in the second quarter, what was lost in Q1 because of Easter holidays early and stuff.

[Thomas Schulz, executive]

Yes, I would not take it to the holiday part, but we have that, let us call it seasonality in the quarters. For us, important is the year-to-date performance, and that's roughly the same as we had it last year. What comes on top is, of course, that what we got with our acquisition. And of course, that would be based on synergy with the acquisition of former Stork, what we create more. So, EUR 1.5 billion order intake is definitely a very, very positive result, but I would not get carried away with it.

[Christoph Dolleschal, analyst]

Okay. And then the follow-up would then be on the opportunity pipeline that you currently provide now. Could you tell us which vertical and which regions are most promising currently and probably also what has changed over the last 12 months with regards to that pipeline?

[Thomas Schulz, executive]

At first, what changed with the pipeline is, of course, that we, with the new strategy or updated strategy what we announced in February 2023, we are able to offer more of our combined solutions towards the client. That makes us more attractive. We see that our share of wallet is going up. That, of course, is good and gives us a higher opportunity. We can bid on more. On top of it, the Stork acquisition gives us another step upwards where we can bid on more. That all contributes into a higher opportunity list.



On the other side, when we look into the most promising regions and industries, the highest growth rates percentage-wise is in the Middle East, and then in North America and then in Europe. But you have quite a lot of differences in Europe. You have Germany, roughly 8% to 10% in the production index down. And you have other areas like Belgium, Netherlands, Nordics, partly U.K., quite high up. So overall, fairly simple set. We have a stable situation in Europe, and you have quite a good positive situation in the Middle East, and you have a good to stable or stable to good situation in North America.

[Christoph Dolleschal, analyst]

Okay. Thank you. Probably a bit of a more technical one. On Stork, is there like a similar seasonality as in Europe with regards to the margins? Or is it pretty stable?

[Thomas Schulz, executive]

You have, as we -- a smaller you get in the business as more volatility or seasonality you have in the figures. So, the product mix in the quarter 2 was quite good for the newly acquired business. And this is not Stork, this is former Stork. It's Bilfinger from 1st of April, and we are very proud of it, I have to say that. That's the reason why I mentioned it. But we had a very good product mix in the quarter, and that resulted in a quite good EBITA.

[Christoph Dolleschal, analyst]

Okay. So, understanding correctly, it means we will likely see a seasonality as within Europe pre-Stork, but to say, with a bit more volatility because of the smaller size?

[Thomas Schulz, executive]

Yes. You will not see each quarter with the same order intake, revenue and EBITA. That's a given.

[Bettina Schneider, executive]

Thank you, Christoph. Okay. Then there is another question from Chaima Ferrandon from ODD0 BHF. Can you update us on the sale of the South African activities? Are discussions with local investors -- with local investors going well? And according to your advancement, when do you expect the disposal to materialize? And second one, do you have any leads or discussions about new potential M&A targets?

[Matti Jakel, executive]

Thanks, Chaima, for the questions. I will talk about South African business. Yes, we have been discussing and we keep discussing, and these discussions are really going with local investors as already communicated during the last quarters. Things do take a bit longer in South Africa than in other parts of the world. And we also had the general elections in South Africa with a lot of political changes coming. And since we are working there for Eskom, the National Energy utility that did have an impact on timing and progress there. But there's quite a bit of interest there and the discussions with local investors are very constructive.



When to materialize is really difficult to say. I don't expect it to materialize in 2024. That's where we are right now. But I'm quite optimistic that it will materialize at some point in the future. On new potential M&A targets, well, that pipeline is almost as active as our business opportunity pipeline. Is there anything that's closed? I wouldn't say so, but there's a lot of interesting targets out there. And since M&A is part of our strategy, we are quite active and quite focused there to really find those targets that do help and support the implementation of our strategy. So, core business, core markets, core clients are the sort of the things that we are looking at more closely than other things.

[Bettina Schneider, executive]

Okay. Thank you. Next question from the chat Ciara Doherty from Metzler. Regarding Mr. Schulz comment on the shortage of qualified workforce in Germany, is that across the economy? Are specific to sectors building out addresses, i.e., creating a specific shortage of skilled labor for your business?

[Thomas Schulz, executive]

Yes. I will not talk a lot about Germany, and we actually have quite a lot of people living here. We actually have quite a lot of young people living here. So, we have no shortage of workforce. It's actually a shortage of qualified workforce and, of course, the appetite to work is an issue in Germany, too. If we look in the sectors where we are working in, you see that some of our clients announced layoff rounds. We think that this will a little bit take the tension out of the qualified workforce run what we saw in the last 1 to 2 years. We, as Bilfinger don't see that huge problem with shortage of skilled labor. Why not? We are well known. We think we are a good employer. And we actually have this training and education plan, which is out of the efficiency program where we said that we spent more than 0.5% for our -- more than 0.5% of our revenue into training and education. So, anyone blue color who starts with us can have a career up to the highest level, that is possible.



Are we are stopping bidding for contracts if we have skill shortages? No. But you can imagine, if we get too many contracts where we have to bid on it exactly at the same time in the same technology area in the same region, it gets for us tricky too. We had that last year. We were quite vocal about it in Belgium and Netherlands, and we're very happy to get our new Bilfinger colleagues on board, former Stork entity members, and they help here to support us to bid more. And that's fine for us. So, for us, overall, we have a strategy on it. It works out and the lack of skilled labor for Bilfinger is not that big issue as it's always communicated for the whole industry.

[Bettina Schneider, executive]

All right. There are no further questions queuing up. So, with this, we conclude this question-and-answer session. Thank you very much for participating. Enjoy the rest of the summer and talk to you again latest on November 13, when the third quarter results will be published. Thank you, and goodbye.