Bilfinger SE

XETRA:GBF

Earnings Call Analysis

Bilfinger's Q3 2023: Orders Down, Revenue and Margins Up

In Q3 2023, Bilfinger's orders dipped 5% due to strategic restructuring in North America, yet revenues organically grew by 7% to EUR 1.12 billion. Noteworthy is the EBITA margin jump to 5.1%, far exceeding the previous year's performance. Additionally, the net profit surged to EUR 37 million with earnings per share nearly hitting EUR 1. The company's cash flow remained stable at EUR 61 million. The group outlook for 2023 stays confirmed, with an ongoing efficiency program expected to save EUR 55 million by 2024 and strategic investments of EUR 13 million in training and education in progress.

Strategic Decisions Reshape North American Operations Amidst Global Growth

The company has undertaken a significant reorganization in North America aimed at strategic repositioning, which caused a 5% decrease in orders received. Despite this, revenue increased by 7% to EUR 1.12 billion, suggesting resiliency in the face of the reorganization. Without this strategic shake-up, revenue would likely have seen a double-digit rise. This strategic repositioning is directly linked to a departure from certain business activities in the region, specifically the installation part of large facilities.

Robust Profit Margin and Cash Flow Indicative of Strong Operational Performance

A notable success this quarter was the increase in EBITA margin to 5.1%, a substantial improvement over the previous year. Net profit also saw a significant jump, reaching EUR 37 million. Earnings per share experienced a growth spurt, partly due to a reduced number of shares following a share buyback program. Free cash flow remained stable at EUR 61 million, aligning well with expectations and underscoring the company’s solid financial health.

Cost Discipline and Efficiency Program Drive Margin Improvements

The improved gross margin and a reduction in SG&A expenses from 7.3% to 6.3% are key achievements reflecting the company's cost discipline. The efficiency program contributed to a decrease in SG&A expenses, going from EUR 78 million to EUR 70 million. These factors played pivotal roles in boosting the profit margin.

Segment Performance Varies with Strategic Initiatives and Market Conditions

Performance varied across different segments, with Europe orders seeing organic growth and Technologies orders remaining stable. However, E&M International orders faced a steep decline due to the strategic exit from construction business in the U.S. Revenue was down in line with this, but still managed to report a profit, demonstrating the segment's resilience. The segment's outlook has been adjusted from an EBITA margin of 1% to 3% to a more conservative 0% to 0.5%.

Encouraging Group Outlook Solidifies With Growth and Restructuring Milestones

The company reinforced its group outlook for 2023, forecasting a revenue range of EUR 4.3 billion to EUR 4.6 billion. The strong performance across key industries and regions, underpinned by a focus on efficiency and sustainability, resonates with the company’s overarching strategy. With an EBITA margin of 3.7% already achieved year-to-date, the company remains confident in its ability to meet these projections.

Continued Focus on Efficiency with Significant Future Savings Planned

The efficiency program is progressing, targeting EUR 55 million in savings for the full year of 2024, with approximately EUR 35 million already likely to be realized. Despite the absence of a direct positive effect from the program on the third quarter's EBITA, the program fosters a palpable cost-conscious culture within the company. Furthermore, the program will see about EUR 13 million reinvested in training and education, emphasizing the strategic attention to human capital.

South African Business Remains on the Market, Awaiting Strategic Divestment

The performance of the South African business continues to be robust and satisfactory, which allows the company to be selective and patient with its disposition. Currently, a sale is not envisioned for the remainder of the year, with efforts focusing mainly on engaging local investors due to limited international interest in the region's businesses.

Earnings Call Transcript 2023-Q3

[Bettina Schneider, executive]

Good afternoon, ladies and gentlemen, and welcome to Bilfinger's Third Quarter 2023 Earnings Call. My name is Bettina Schneider. Joining me are Thomas Schulz, our Group CEO as well as Matti Jakel, our group CFO. [Operator Instructions] And that the conference call is being recorded.

Thomas and Matti will provide highlights from the quarter and then open the call to your questions. You can ask them via phone or via chat in the webcast.

With this, I would like to hand over to Thomas Schulz.

[Thomas Schulz, executive]

Thank you, Bettina. Hello, everybody. Let's start directly with the key highlights for the quarter 3 2023.

Our orders received went down by 5%. Background for that is purely the restructuring and repositioning initiatives based on our strategy in North America. Revenue went up organically by 7% despite the reorganization and repositioning in North America. Otherwise, it would be double digit.

The highlight for the quarter is a significant increased EBITA margin to 5.1%, which is significantly above last year. Our cash flow was EUR 61 million is in line with our expectations.

When we then look into the market, over all industries and all regions, a stable market situation in line with that what we announced in the Capital Market Day as an industrial growth over the next period of 3 to 5 years.

Our efficiency program is fully on track and will be closed at the end of the year and the signing of Stork, which means the agreement with Fluor to take over the Stork business predominantly in Belgium and the Netherlands is another milestone what we tried to achieve then beginning of next year with the closing as an M&A part. Our group outlook for 2023 is confirmed.

Before we go into the financial figures, safety. Safety is for us a very high priority. And you see that we improved our safety KPIs in the quarter 3 2023 versus quarter 3 2022. For the year 2024, we will have a so-called safety year to reestablish again the highest possible focus on improving our safety and safety performance.

If we then go to the financial figures. We received stable order level from Europe, segment Europe as well as technologies. But based on our strategy to reposition us in the United States and to let old kind of business go, we had bear quite a significant decrease, which was expected and in line with our strategy.

So out of that, our orders received went down by 5%. When you look on the upper left chart, you see that in that EUR 1.03 billion order intake, only 32% is a part out of the project business, which the going down of the percentage of the share of project business of the total business is fully in line with our strategy.

Our book-to-bill year-to-date is with 1.06 in line with that what we see as growth for the year 2023, and was a little bit softer with the book-to-bill in the quarter 3, but we have always some seasonality in it.

If we then look into the revenue, the revenue went up 7% as you see on the left down chart. And in that 7% increase, we have a double-digit growth in Europe as well, especially in technologies, but significantly lower negative growth of more than 20% down in the international, which is purely out of the North American restructuring.

If coming back to that, how the order perform and how the revenue perform, you see in both that the impact of the restructuring of North America has a significant impact on both areas. Of course, with the largest more than 40% down in North -- in international, for the order intake in the quarter 3 2023, which is, as I said before, in line with our strategy.

Here, we show some, as always, some selected orders. This time, it's about Oil and Gas in the North Sea, actually for the U.K. with framework agreement contracts. And Oil and Gas is a big area, and we see that the business for the oil and gas companies are growing quite well, and we don't see in the midterm, any change of that quite good market conditions for our clients as well as for us.

The middle part, you see our hydropower project in Lithuania. The important part is that this is a proof -- another proof of our self-propelled growth initiative, what we announced in February. And why is it self-propelled? It's one of our core top competencies, what we have to support customers in hydropower installation. And this time, new area in the Baltic states, it's actually the first one with hydropower into the Baltic states.

On the right side, it's about biopharma. There you don't see the customer name because that area, as you can imagine, is quite confidential in all what they do. But we got again quite a large contract in Northern Europe to help a client to build standardized, repeatable, highly reliable production units.

Then to the innovation. Innovation is the poor part of Bilfinger to work with our clients. As you know, we are on hundreds, thousands on sites and customers to work with them to be more -- to enable them to be more efficient and sustainable. Big part of that is that we look around and see where we can put new innovation to the clients, acting and now are acting then on site.

This time, it's about a pump digital optimization system, what we call [indiscernible] it combines all pumps on a site, no matter who supplied it, no matter, which type of pumps in a way that they are regulating against each other. And with that, enabling the client to reduce energy costs per pump with more than 50%.

On top of it, with all the rework and refurbishment, what we do with pumps, it has a significant sustainability impact because with already existing pumps, you can achieve energy savings as normally you do with new installations.

Out of that, we go into the efficiency program. As you know, the efficiency program started exactly a year ago and -- or we announced it a year ago, and the program is about to save EUR 55 million as a full year effect in the year 2024. The target is to reduce 750 positions in admin functions throughout the whole group. Up to the end of September -- up to the end of the third quarter, we took out 452 positions in the quarter 3 more 201 positions.

The cost what we had up to now is around EUR 6.4 million, where in the quarter, a little bit more than EUR 3 million happened. The total cost for the program was announced with EUR 62 million for the whole efficiency program. Important to know is if we would what we definitely didn't do and will not do until we are done, which means up to the end of the year, if we would have been stopping the efficiency program at the end of quarter 3, our full year saving effect in the year 2024 would be already close to EUR 35 million.

One part of the EUR 55 million savings is a reinvest of EUR 13 million into training and education. That didn't start yet. But in the root cause of this quarter 4, we will start to look more into and building that up, what is so much needed in our industry to train and to educate new as well as existing colleagues, because competence matters.

The non-provisionable costs for the realization of the program were year-to-date EUR 3.6 million. And not to forget, the baseline of all the calculations was the first of January 2022.

Out of that, I would like to give to Matti with the financial highlights.

[Matti Jakel, executive]

Thank you, Thomas. Good afternoon, everyone. Let me give you a bit of flavor on the financial side of this quarter.

Orders received, as Thomas said, is minus 5%, but driven by the restructuring of our business in the United States, where we give up one part, the installation part of large facilities. And without that impact, orders received would have been positive 2% for this quarter.

Revenue is up 7%, also driven a little bit by the restructuring in the U.S. Otherwise, it would have been double digit. But more importantly, we improved our gross margin, we reduced our SG&A ratio to 6.3% and this together led to a improvement of our EBITA margin to 5.1%, which is 170 basis points better than the quarter 3 in 2022.

Even more important, we generated EUR 37 million of net profit. That's also significantly above prior year and earnings per share amounted to almost EUR 1 for the quarter 3 of this year. Again, much higher than what we had last year.

Free cash flow at EUR 61 million in line with our expectations, a little lower than prior year, but I come to the details there in a moment.

Revenue increase of 7% to EUR 1.12 billion in the quarter follows the trend of the last 2 quarters. The increase over last year in Europe was 10% in technologies, 21%, and the decline in the United States was 24% in the international business, driven by the U.S. business.

Profit margin, as I said before, up to 5.1%. 50% improvement on the margin, 55% improvement from EUR 37 million to EUR 57 million in euro terms, that is comprised of the EBITA margin for Europe at 6.0%, technology is 5.5% and international, also positive contribution of 1%. No special effects in this quarter or in the prior year quarter.

Gross profit shows already some effects out of our strategy in terms of derisking. Also the U.S. restructuring is helping there, but more importantly, we were also able to pass on inflation-based price adjustment to a number of our framework clients, which is not only helping this quarter, but will be helping our margins and margin progression in the coming quarters. So 11.0% after 10.6% is on the right track.

On the cost side, SG&A expenses from 7.3% last year to 6.3% this year despite inflation. So good cost discipline, effects from the efficiency program led to a decrease in euro terms from EUR 78 million to EUR 70 million, also a nice achievement in quarter 3 of this year.

As far as the P&L is concerned, the reconciliation from EBITDA to the net profit, comparing this quarter to last year's quarter, financial result quite stable, minus EUR 8 million versus minus EUR 7 million. Obviously, making more money, you pay higher taxes, EUR 11 million versus EUR 7 million last year. No change on the discontinued business or the minorities led to EUR 37 million in quarter 3 2023 compared to EUR 22 million last year.

And the earnings per share were even growing faster, but this has also to do with the reduced number or lower average number of shares following the share buyback in last year. Cash flow close to prior year level. In quarter 3 of 2022, we had a nice inflow of advanced payments from project acquisitions that was a bit lower this year. So it is quite consistent with our order intake and also related to the derisking where we will very much look at the risk profile of projects that we take on.

Net trade assets increased by roughly EUR 60 million. That's consistent with the lower level of advanced payments, but also with the increase in revenue. So nothing special to report here. A quick look to our segments in Europe. Europe orders received organically increased by 2%. And book-to-bill is 0.9% for the quarter. The revenue increased, obviously, by 11%. So we see double-digit revenue growth there and the margin increased to 6.0%, EUR 44 million over last year's quarter.

It's important to point out that the growth and the EBITA progression is happening across all regions in Europe. So we have quite a stable basis to grow from and that is showing here. There's no change to the outlook for this segment.

E&M International, orders received, as already said, is down 42% organically, largely driven by the exit from the construction business in the United States. So that trend should stabilize and revert at some point in time. Revenue is following this by minus 22%. Also positively to note is that we're reporting a profit in international. It's only EUR 2 million, but it's positive. However, if we look at year-to-date, we're still negative minus EUR 7 million.

And as a consequence, we have slightly reduced our outlook for the segment International from 1% to 3% EBITA margin to 0 to 0.5%. So we're still guiding for a profit in segment International.

Technologies. Orders received quite stable, minus 1%. We all know that this business is largely driven by projects, as you can see on the bottom right-hand side and order intakes do vary from quarter-to-quarter, nothing unusual here. Revenue has increased to EUR 185 million for the quarter, 22%, again, largely driven by the order intake that we have had in the preceding quarters.

Profitability for the quarter is 5.5% after 4% in last year. Also no change to the outlook in this segment here. And maybe one additional comment to the outlook and as an offset to what is happening in International, we are increasing based on a better performance, the outlook for the reconciliation for the group, which consists of other operations, the headquarter consolidation and others by about EUR 5 million. So overall, remains the outlook as reported before. That's it on the numbers, back to Thomas on the market.

[Thomas Schulz, executive]

Thanks a lot, Matti. So as you know, we look into our 4 main industries where we act in. Let's start with the energy sector, roughly 20% of that what we do. There, the energy transition is, of course, the big driver and we see throughout all areas in the building a world growth. And when we look into that growth, what is it, it is, of course, with new technology in green, it's to improve existing assets and a special highlight what we like always to point out, nuclear clearly has, in the biggest part of our business areas, a big, big revival.

When we then look into the Chemicals and Petrochem, we're doing roughly 30%. There, the maintenance activities to improve efficiency and at the same time, to improve sustainability is on a high level. And our business is mainly on existing plants, and we see that this run for efficiency is what we discussed with customers in and out. That market develops stable and we see it the same as we saw it when we had the Capital Market Day in February.

Only skeptical part and skeptical view is, of course, on the German economy, especially with higher energy requesting and demanding industries as the chemicals is.

The other industry where what we like to highlight is with Oil and Gas. The global demand for oil and gas is quite high. There was over very long period of time and under investment on the existing assets, what customers are trying to ramp up again. And on top of it, all our oil and gas customers are trying to get more into new technologies, more sustainable technologies like LNG, hydrogen, carbon capture, et cetera.

But we have regional differences in the decision-making process. I can say different, the admin work in Europe is significantly higher than the admin work is in North America, and that is higher than the admin work necessary for these new investments like in Middle East. But overall, a healthy industry, and we don't see actually a change in the midterm on that outlook for that industry.

The last of the 2 highlight industries is Pharma, Biopharma, more and more going into nutrition too. The border line is -- or the border is actually quite, yes, fluids in it. And we see a clear continued high demand for -- from that industry.

Where is it coming from? Localization of the supply chain is a big part and the speed, how new innovations get realized into factories and into production is most likely the highest since that industry is operating globally, which we are building, of course, like a lot.

And when we look into the demand for maintenance and service as we have in the chemical industry or oil and gas is quite high.

All over, we see throughout all the regions, all the industries, a stable demand, and we stay in line with that what we said in the middle of February, that we see for the next 3 to 5 years, an industry growth of 2%. And we actually see with that what we said to focus on efficiency and sustainability to be in the real beauty spot of all the industries where we work in, because that is what our clients need and what they talk about and where they have money for.

From that, into the group outlook, we have a guidance for 2023 on the revenue of EUR 4.3 billion to EUR 4.6 billion, and we are up to the end of quarter 3 on EUR 3.3 billion -- roughly EUR 3.3 billion, and we will, of course, lie in that guidance.

If we look into the EBITA margin, we had quite a good quarter. Matti explained where that came from. And we are, of course, quite confident to be in the guidance because we are already on 3.7% EBITA for year-to-date and we have a guidance 3.8% to 4.1%.

The free cash flow, what we had in the quarter was EUR 63 million was in line with our expectation. And we keep, of course, there the guidance to the EUR 50 million to EUR 80 million on the full year. So the group outlook is confirmed.

With that, for summary, orders received was minus 5% based on the restructuring, repositioning in North America. Our revenue growth was plus 7%. Despite that repositioning in North America, we had a significant increased EBITA margin to 5.1%. The free cash flow was EUR 61 million, not EUR 63 million, as I said before, sorry, EUR 61 million in the quarter.

We see a stable market situation in line with that what we said in February on the Capital Market Day. Efficiency program on track will deliver as we promised. And the M&A with Fluor Stork to go closer to that what we want to be the #1 in efficiency and sustainability predominantly in Belgium and the Netherlands is a good thing, and we look forward that we can make the closing in the first half of 2024.

And with all that together, of course, we confirm the group outlook for 2023. And now back to Bettina.

[Bettina Schneider, executive]

Yes. Thank you very much. [Operator Instructions] The first question comes from Michael Kuhn, Deutsche Bank.

[Michael Kuhn, analyst]

I'll ask them one by one, and I start with E&M International. You're guiding for a lower margin in '23. Now is that just a function of being like a little behind the schedule this year? Or would that also have any implications going into 2024?

[Thomas Schulz, executive]

Yes. The -- when you look into the absolute figures, you see that the difference is not quite big between that what we had as the guidance versus that what we now reduced the guidance to 0 to 0.5%, because we have quite a low revenue that's based by purpose because we restructure, we phase out business what we don't want to have.

We see that the positive development, what we have now since the quarter 3, because E&M International was positive on the bottom line, will go into 2024. We are actually not behind plan, but we took the approach to phase out the business quite tough and rough, and that is what you see in the figures.

We decided to make it as quick as possible, as clear as possible. You saw already in the quarter 1 more than 1,000 colleagues in North America, leaving our company to avoid that we take anyway these kind of orders out of that kind of business, what we want -- what we don't want to have. So we see the positive development going on in 2024 and it will not change our picture.

[Michael Kuhn, analyst]

Very clear. And then on the restructuring program or the efficiency program and the progress, we're pretty much halfway through Q4 now. If we would look at the KPIs as of today, where they stand? That's the first question.

And the second one on the efficiency program. What amount of savings did you already see in Q3, if any? And did we already see a positive effect here?

[Thomas Schulz, executive]

Yes. The positive effect, what we had in quarter 3 actually is covered up by the non-provisional costs what we have. So there's actually no real impact on the EBITA from the efficiency program in the quarter 3.

The savings is the EUR 55 million and that is what we stick for. And we are actually more through than half, because we are already close to EUR 35 million if we would calculate it on the full year effect 2024. So we have still, what is it, Matti? 40%, 35% -- 40% to go. And we are in very, very good mood with such a great team, what we have in the Bilfinger Group to achieve that what we set with the efficiency program.

[Michael Kuhn, analyst]

And then on the cash flow guidance and the cash out from restructuring, the guidance is including the cash out of around EUR 60 million from the provisioning, and even including the effect, I would say, the free cash flow guidance looks slightly cautious. So maybe some more color on that. Do you expect indeed to see all the cash out from the efficiency program to happen in Q4? Or could there be some delay into next year? And maybe also what we should expect from the other moving parts in cash flow with a focus on working capital, maybe?

[Matti Jakel, executive]

On the efficiency program, there's a lot of things are moving, and it really depends on the negotiations when you agree with people when they leave and then the cash out will follow that one. But we're quite optimistic to get there through the end of this year.

Could there be some money being spent next year? That could be the case, but we're still hopeful to get it done this year.

On the other moving parts of the free cash flow, we're keeping the EBITA margin guidance as it is. So that part looks very, very good. And the other part, the net working capital, obviously, the fourth quarter is always our strongest quarter and improving our net working capital, and that is what we expect as well for 2023.

So overall, the guidance we should really come within the guidance. That is what we are expecting.

[Michael Kuhn, analyst]

And then very last question, I promised a quite substantial beat on EBITA came from the other operations in the third quarter that is usually driven by South Africa. So maybe a quick update on the situation here. What is the operating development? And based on that, does, let's say, the strong operating performance of the activity maybe facilitate a disposal, which is obviously still on the agenda, but you reiterated a couple of times already that you're not in a rush there. So any color on that would also be highly appreciated.

[Matti Jakel, executive]

Yes. Yes, Michael, very happy to do so. It's the EBITA in the group reconciliation has to do with other operations, but we had a few other effects that have to do with the entire group. So that also played a little part in it, but we're not talking big numbers anyways.

South Africa is an interesting subject and I could talk about this now for some time. But to keep it short, yes, our South African business remains on the disposal list and the operation there is really performing very well. So we have -- we're really not in a rush to sell. We have been diligently working with local investors to strike a deal. I don't think we should expect anything happening this year. They're moving into the summer break within the next 4 weeks. So things do take a little longer.

But it's also quite clear that with where South Africa as a country right now, you don't find much interest from International investors. So we have to do with local investors and that typically does take time. But as I said, we're having quite a bit of fun with their performance and there's no rush.

[Thomas Schulz, executive]

And of course, you just talked and gave the questions to the head of that other operation business, Matti Jakel. Of course, that's the second job out of the whole group of jobs what we have. And we did a lot of -- and Matti's team did a lot of improvement in the last few years in that business. And good work is always ending up in good results.

[Bettina Schneider, executive]

So next one is Gregor Kuglitsch from UBS.

[Gregor Kuglitsch, analyst]

So I wanted to just confirm. I think you previously sort of suggested that essentially the net saving effect of, give or take, EUR 40 million would basically all be incremental in '24, I don't know if that's still accurate or whether you actually believe some of the cost savings will already accrue this year? I think you kind of answered it for Q3, but not necessarily for the year.

And then similarly, like if I just look at, obviously, your quarter 2 and quarter 3 performance were quite strong in terms of profit evolution and margin evolution. And obviously, your guidance kind of implies a bit of a flattening out of the seasonal profile. So I want to understand what changed and if that's the correct kind of interpretation of things.

And then finally, can you actually tell us what the run rate revenue basis of International is going to be once you've sort of ex out these U.S. contracts that you no longer want to be in? So what's the sort of revenue base of that business, basically? Yes.

[Thomas Schulz, executive]

First was the efficiency program. As you rightly said, it's roughly EUR 42 million, which hits the bottom line in 2024 full year out of the efficiency program because around EUR 13 million will go into education and training. And we stick with that and we are quite confident to achieve that.

The same is with the cost what we have with it. And the same is with the positions of 750 admin positions what we take out of the company. The program is well on the way. And the advantage, what we could have up to now are actually all maneuvered out with the non-provisional costs what you have in such a program. So we have, on the bottom line, in the quarter 3 as well as year-to-date, actually no positive effect out of the efficiency program per se.

The side effect we have, but that's more a soft value what we have there. Of course, when you announce these kind of programs, especially as we did it, that sophisticated purely focused on white collar admin function, you create a sensitivity on cost spending. So the discipline in the group actually is on a very good level. And the beauty of it is it didn't come with a lot of push or push from us at all, and that is great.

So that is the only real contribution into the actually EBITA situation. And we know, as we did the EP program, efficiency program, that this cost sensitivity is going on because all our managers are quite good role models in that too.

The second part of your -- the second part of your question, we stick with that what we had as a guidance. Actually, the quarter has built up to a large extent as we saw it coming. A little bit norms we had with the E&M International, where we are with -- if we look into the absolute amount of money, a little bit below that what we actually thought we will end up with. It's good to see that they are on positive. But of course, we didn't like that we had to reduce to 0 to 0.5% the EBITA guidance but it comes from 1% to 3% very little figures.

Then we look into the revenue part. We already have a little business, what we call repositioning, where we sell more of the good products, profitable products, what we have in Europe, for example, into North America, but that has to get speed. That's very little. We are still in the phase to reduce and taking that out. And we think that up to the end of the year, we are approved with that, and then we achieved the baseline where we think it should be. The baseline and from there, we will grow, especially based on the business environment, what we have there, which is for the business, what we offer quite positive.

[Gregor Kuglitsch, analyst]

Okay. But is the number EUR 600 million, EUR 500 million or EUR 700 million? Do we know roughly what the run rate of that business is in terms of thinking about a baseline for next year?

[Thomas Schulz, executive]

We have EUR 600 million to EUR 700 million as a target in it. And we were on the Capital Market Day. When you look into that material, you see actually on E&M International, the growth rates and the EBITA guidance what we have in the 3 to 5 years horizon. So that fits with that what I just said.

[Bettina Schneider, executive]

Next one is Christoph Dolleschal, HSBC.

[Christoph Dolleschal, analyst]

The first one is just to clarify once again to make sure those who are probably not familiar with your story. On Page 7, you're talking about the onetime cost of EUR 62 million, but I just wanted to make sure this is like the cash out because you've already provisioned it in the fourth quarter of 2022, right?

[Thomas Schulz, executive]

Yes, absolutely. And then, of course, the one-time costs refer to that what we had in last year when we announced the program and we said that we will take that slide -- that detailed slide each quarter as long as we are in the efficiency program. And that's the reason why we didn't change any wording on it. But you are completely right.

[Christoph Dolleschal, analyst]

Yes, I just want to make sure, not that people suddenly start deducting EUR 62 million in 2024, which will be a problem then.

The other question is on your order intake when we are now -- when we leave E&M International out for a moment. So when we're talking E&M Europe and Technologies. So order intake was roughly flat. So question number one is, can you remind us how big the pricing effect is in there? Is it right about 4% to 5%, if I remember correctly?

[Thomas Schulz, executive]

We see pricing at 3% to 4%, to be honest. 4% to 5% is a little bit too high. And don't forget in -- when we look into the year 2023, we had that anomaly in the order intake to have an unbelievable strong quarter 1, which was based on customer request very artificial, strong. So normally, we would see some of these orders actually going throughout the year and not as it was in 2023, quite a lot of the larger ones in quarter 1 already decided.

[Bettina Schneider, executive]

Inflation effect 3% to 4%.

[Thomas Schulz, executive]

Yes, inflation effect, 3% to 4%, yes.

[Christoph Dolleschal, analyst]

Okay. And then because you kindly elaborated on how the markets are doing with energy, chemicals or gas, pharma. Could you also break that down to certain -- not really in like the last digit. But where we have seen the order intake in the third quarter, which were like the most positive surprises? Which one probably didn't perform as well? I mean you keep on mentioning, especially in Germany, the situation of the chemical industry. Is that also visible in your order intake?

[Thomas Schulz, executive]

The reason why we brought up Germany is there is a lot of media talk about the industry and about the chemical industry and what happens with subsidies and political decisions and so on. When we look throughout the whole area, that means North America, Middle East and whole Europe for the chemical industry, it doesn't look that bad to make that fairly clear. Germany is important, but Germany is not everything in that.

And of course, when you sit with the headquarter in Germany, you have to be careful that you are not getting sucked into that all is negative thing in Germany.

When we look into the order intake, how it is. Actually, we look more into if we are in special segments like industries or regions or end or with special customers, very successful. If you, for example, turn the customer who was 30, 40 years will appear, then coming to us and saying we need better efficiency and sustainability. These are the things what we highlight more.

Then to the chemical industry in Germany, we see a lot of activities in the frame agreements, because customers are looking in each dark corner where they can save energy and on top of it, how they can get more sustainable and very much on top of it to help them to get that unbelievable demand of admin work out of Berlin and Brazil better workflow. And in all these areas, we are quite good.

[Christoph Dolleschal, analyst]

Maybe a little bit more -- is that good or bad for the German market? I mean are they asking for your help? Or is it rather that they are trying to wind down operations?

[Thomas Schulz, executive]

They are asking for help. They are asking for help, and the winding down of operations, we don't see that much, only what you see in the media to. The question must be more how much is the investment coming in the next few years into Germany. But on the other side, if companies are not investing, if they decide not to invest in Germany, they will invest in other areas where we are generally already established, and that is a good thing, too, because they know us out of the German market quite well and they would like to have us in other parts of the world, too.

[Christoph Dolleschal, analyst]

Okay. And then probably last but not least, can you -- if you would need to bring them into an order like energy, chemicals, oil gas, pharma, where was the strongest oil intake? Where was the weakest?

[Thomas Schulz, executive]

We have some seasonality in it if larger projects hit the quarter or not. And that, of course, from a financial point of view, changed a little bit the picture, but we see a clear demand out of energy transition, whatever is energy transition. No matter if it's in the chemical industry, if it's in the energy industry or if it's in oil and gas. On the other side, we see a lot of demand, but on a smaller scale in the pharma biopharma part.

[Matti Jakel, executive]

If we look across the industries, there's really no weak spot in there, not in chemical, not in pharma, certainly not in energy. It varies from quarter-to-quarter between those industries, but we have not seen one industry really slowing down significantly. That is not what we have seen.

On the third quarter order intake in the segment Technologies, which shows flat, there's a number of opportunities that we have been pursuing for quite some time. And here, you always find the timing effects of investment decisions by our customers. So this could have easily been much higher with a growth rate. So if they don't come in the quarter 3, then they come in quarter 4, but that's normal.

We did an analysis on the order intake a while ago and there's no way of saying, which quarter will be the strongest. There is no clear seasonality could be any of the quarters in the year that could be the strongest throughout the year. If I compare this to revenue, then we do have a real seasonality that shows year after year after year.

[Bettina Schneider, executive]

Next one is Craig Abbott from Kepler Cheuvreux.

[Craig Abbott, analyst]

Yes, first, 1 or 2 questions on International and then also one follow-up on Europe. On International, just following on from the earlier discussion because obviously, I was also trying to work out what your sort of base rate for revenues might be. You mentioned the EUR 600 million to EUR 700 million.

I just wondered, however if you could provide a little bit more color on how you're progressing after you net out the work down impact on order intake, and just look at your core framework maintenance business, which you want to focus on, have you been growing your order book there? So I think that -- yes, if you could provide some color there. And then I'll ask my question on Europe thereafter.

[Thomas Schulz, executive]

We -- what I clearly can say is our framework maintenance business definitely is growing in the order book. That's a given thing. You see it already in the amount of projects. We only were 32% project business in the order intake. And the U.S. business, if I highlight that, what we phase out is overall project business. Project business that we don't want to have.

And on the other side, in North America, the demand of framework maintenance business is growing. And we knew that the year 2023 will be a little bit tricky because you phase out of one and you have to increase and create new business with existing products what we have. On the market, that's not the easiest thing to do. So we see 2023 as a transition year.

[Craig Abbott, analyst]

Okay. So from that base idea that you expect growth in the maintenance business in '24?

[Thomas Schulz, executive]

We expect growth, but I will not guide on 2024 because otherwise I would get a problem with Bettina you now.

[Bettina Schneider, executive]

Yes. Because in the first half of '23, there was still some project volume in the revenue. Please keep that in mind.

[Craig Abbott, analyst]

Yes, on Europe -- no, sorry, on Europe, just a follow-up also on to the discussion. Yes, I realized that in Q1 of this year, as you well flagged at the time, you had special pull-in effects in the order intake. And now we're seeing that order number resolve from that.

But nevertheless, we have a situation, as discussed in the previous question, particularly here in Germany. So there was some question mark on the likely order activity -- ordering activities, excuse me, near term. So I just hear as well. I mean, if we sort of try to shape that order intake figure out into growth in '24, you still reasonably optimistic on being able to grow that top line in Europe in '24? And how confident are you of again being able to pass through inflation adjustments next year?

[Thomas Schulz, executive]

The -- I think the -- with the inflation, that's not for us what we see as a up-battle to say that loud and clear. But I'll make it like that. When we announced in February our Capital Market Day, we set a 2% growth of the industry where we act in and the regions where we are. Quite a lot of people said this is too high and significantly more people said that's too low. We defended that. And then we came in quarter 1, a few weeks later with a growth rate of 25%, which made it a little bit difficult to explain.

So I take it very positive what we see at the moment in the order intake and we stick with that. We see an industry growth rate of 2% throughout all industry and regions combined where we are [indiscernible] in for the next 3 to 5 years. And on top of it, we are able -- what we already did a little, not a lot, but that lies in the nature of a strategy execution, self-propelled growth where we put already existing products to new customers and new regions and/or in existing regions, some of the other products from other regions, which are profitable.

So we see the market for us on that, what we said in February on the Capital Markets Day, a stable market development, 2% growth for the next 3 to 5 years. And that, as we all know, is not saying that each year will be exactly 2%, but we have with the 2% to 3% self-propelled some possibility to impact. And as we proved with the efficiency program, we will do that with the profile growth.

[Bettina Schneider, executive]

[Operator Instructions] There are no further questions. So we will conclude now this Q&A session. Do not hesitate to contact the IR team in case you need further support. And last but not least, please save the date for our virtual year-end launch on December 5, and 12 p.m. CET. You will get the invitation in the next days. Thank you very much for participating, and have a good day. Bye-bye.