Group CEO (Chairman of the Executive Board), Bilfinger SE
Aufzeichnung der Rede des Vorstands der virtuellen Hauptversammlung 2023 der Bilfinger SE
Die Bilfinger SE hat ihre ordentliche Hauptversammlung am 20. April 2023 als virtuelle Hauptversammlung im Rosengarten Mannheim durchgeführt. Die Rede von Thomas Schulz, CEO, und Matti Jäkel, CFO, wurde live im Internet übertragen und steht jetzt als Aufzeichnung zur Verfügung.
About Thomas Schulz
At the Bilfinger SE virtual annual general meeting on April 20, 2023, Thomas Schulz described the global environment as being in a "permanent crisis mode," citing inflation, volatile energy and raw material prices, disrupted supply chains, and the war in Ukraine. He stated that Bilfinger's focus on improving customer efficiency and sustainability was the correct strategy, noting that the company's solutions are in demand for operating industrial plants, ensuring energy generation, and advancing renewable energy. Schulz reported that Bilfinger's 2022 group result declined from €130 million to €28 million, attributing this to a €62 million provision for an efficiency program and the absence of prior-year interest effects from tax refunds. He outlined a target to reduce the share of project business in total revenue from 35% to 20% and projected a 2023 EBITA margin of 3.8% to 4.1%, with a free cash flow of €50-80 million. Schulz expressed dissatisfaction with current financial performance but reaffirmed the goal of achieving an EBITA margin of at least 5% by 2024.
Transcript (50 segments)
T
Thomas Schulz0:00
Good morning, esteemed shareholders, ladies and gentlemen. On behalf of the Executive Board, I warmly welcome you to this year's Annual General Meeting. Thank you very much for participating. As a company whose business model is based on efficiency and sustainability, we deliberately chose a virtual Annual General Meeting. Under the new legal framework, you can fully exercise your rights in the virtual format, and we encourage you to make active use of this opportunity.
Ladies and gentlemen, please allow me first a personal review of the past 13 months. At last year's Annual General Meeting, I had just taken over my responsibilities at Bilfinger. I was fortunate to meet many of our customers, employees, suppliers, and also to get in touch with some of our shareholders and the media. It was particularly important to me to focus on the future. My visits to numerous Bilfinger locations domestically and abroad — across Europe, the Middle East, and the USA — reinforced my conviction that the Bilfinger team is highly qualified and highly motivated. Our employees have achieved outstanding results under sometimes difficult circumstances, and therefore my thanks to them come first.
It is now in our hands to generate opportunities from the major global trends originating from society, politics, and industry. The world around us remains in a state of permanent crisis mode. The Corona crisis has been overcome, but societal, political, and environmental disruptions — up to and including the unspeakable war in Ukraine — are calling into question the order as we knew it. We companies worldwide face major challenges, whether driven by persistent inflation, extremely volatile energy and commodity prices, ongoing supply chain disruptions, increasing bureaucracy and over-regulation, the shortage of skilled workers, or the global impact of climate change.
We have analyzed these societal, political, and market-relevant challenges and identified the opportunities they contain, which we are incorporating into a correspondingly further-developed strategy. As a first step in this structured approach, we formed an internal expert team — the so-called Team 12 — from all key central and operational areas in mid-2022, which intensively worked on developing our strategy further. As a second step, a new management structure — the Group Executive Management with the Executive Board, segment leaders, and central functions — was established in September 2022 to increase the efficiency of collaboration and operate closer to the business. As a third step, we announced the efficiency program in November 2022. The program's goal is to standardize workflows, simplify administrative structures, and reduce costs.
The efficiency program is an essential part of our further-developed strategy, particularly regarding personnel development. About a quarter of the savings will be invested in the training and further education of our employees. This strengthens our competitiveness and positions us as an attractive employer. In this sense, we see the expenses for the efficiency program in the past fiscal year clearly as an investment in our future. Our CFO, Matti Jäckel, will elaborate on this shortly. The described volatile market developments reinforce our ambition to further expand our expertise in efficiency and sustainability for industry.
Accordingly, we have aligned our strategy accordingly and presented it to the capital market in February of this year. The response from investors, analysts, and the media was positive. Communicating the equity story of the company, and providing transparency on measures, milestones, and goals to make the strategy implementation comprehensible, we consider a core task of management and an important basis for positive share price development.
Ladies and gentlemen, our vision is clear: we want to become number one in efficiency and sustainability for our customers. Accordingly, we have identified two strategic directions: the new positioning as a leading company in increasing efficiency and sustainability, and the improvement of our own efficiency to strengthen Bilfinger's performance. Ladies and gentlemen, in the future, efficiency will be equated with sustainability in industries, and technology will provide the decisive solution for a sustainable future. We at Bilfinger will contribute our part.
It has been shown in the past year that Bilfinger, with its focus on increasing efficiency and sustainability for its customers, has set out on the right path. Our solutions are in demand across all areas — whether to operate industrial plants more efficiently, ensure energy generation more safely and in a more climate-friendly manner, or advance the expansion of renewable energies with technically high-quality solutions. I would be pleased to present some details on this later.
Further important milestones in the past year were also achieved through successful new contracts and strategic contract extensions with important customers. For example, Bilfinger won a one-million-dollar contract for the maintenance of offshore facilities for our long-standing customer Shell in the Gulf of Mexico, which includes efficiency-improving maintenance services on new offshore platforms.
The USA is an important growth market for us, and all the more pleasing that we were able to not only extend existing contracts but also win new ones. In the area of sustainability, we were able to realize innovative projects and support the process industry in reducing its CO2 footprint. In Austria, in the biopharma sector, we developed and built fully automated, modular production units for a vegan cheese production facility. In addition to reducing CO2 emissions through the switch from animal to vegan milk, we were also able to reduce 25 percent of the engineering time for the customer through our standardized plant technology — further evidence of our activities as a partner for sustainability.
Another innovative product is our CO2 Master Planning. Here we analyze existing industrial sites of our customers with the aim of developing concrete proposals for CO2 reduction, including return-on-investment calculations. For example, in one of the largest industrial parks in the Netherlands, the energy supply for boilers was switched to electrical energy, saving the customer approximately 30,000 tons of CO2 per year.
Overall, Bilfinger grew in 2022 and, with revenue of 4.3 billion euros, reached the pre-crisis level of 2019 again. We also became more profitable in our operating business and generated more cash.
Ladies and gentlemen, with great pleasure, we welcomed Matti Jäckel as our new CFO in July of last year. With his engineering and financial expertise, he is a true asset. Over many years, he has driven and further developed important financial topics. Hardly anyone knows the Bilfinger business as well as he does, and I am very much looking forward to working together with him. Dear Matti, I would now like to ask you to take over and present the figures for the past fiscal year.
M
Martin Jäckel10:27
Thank you very much, Thomas. Ladies and gentlemen, esteemed shareholders, please allow me to briefly introduce myself. My name is Martin Jäckel, and I have been the CFO of Bilfinger since July 1, 2022. Since my start — one could even say since 1989 in the then Bilfinger und Berger Bauaktiengesellschaft — I have been able to accompany and shape the development of the company both domestically and abroad. In the autumn of 2010, I moved from the construction business to industrial services as divisional management responsibility, which at that time accounted for about three-quarters of today's portfolio. I bring with me extensive experience in the service and project business, and I am very pleased to be able to help shape the next phase of the company's development in a key role.
Bilfinger's business model has once again proven robust in turbulent times. Ongoing supply chain disruptions, the war in Ukraine, and inflation are presenting our customers with considerable challenges. Our core competence — increasing efficiency and sustainability for our customers — is particularly in demand in a volatile market environment. This is reflected in our business figures.
The order intake of the Bilfinger Group increased by 15 percent in fiscal year 2022 to more than 4.6 billion euros. All three segments of the Group recorded positive development. The order backlog increased by 9 percent to 3.2 billion euros. The order intake-to-revenue ratio stood at 1.07.
Group revenue also grew by 15 percent to 4.3 billion euros, thereby reaching the pre-crisis level of 2019 again. Gross profit increased by 13 percent to 437 million euros, driven primarily by the increased revenue. The gross margin based on revenue was 10.1 percent. Selling and administrative expenses increased disproportionately by only 6 percent to 308 million euros.
Bilfinger achieved an EBITA of 75 million euros in the reporting year. In the previous year, it was 121 million euros. The significant decline is primarily due to the increase in special effects, which amounted to 65 million euros. Without these special effects, EBITA would have been 140 million euros and would thus have slightly increased compared to the previous year. The majority of the special effects related to provisions of 62 million euros for the efficiency program launched in November 2022. This program enables us to achieve savings of 55 million euros per year in the future. After deducting reinvestment in the training and further education of our employees, we improve the EBITA margin by approximately one percentage point.
In summary, the 2022 fiscal year resulted in an EBITA margin of 1.8 percent, or an adjusted EBITA margin of 3.2 percent excluding special effects. This is still slightly below the previous year's values. However, we had benefited considerably at that time from book gains from property and real estate sales amounting to 30 million euros. This item was significantly lower in 2022 at 10 million euros. The difference was more than offset by improved operating results.
Ladies and gentlemen, one of the most important key figures for the CFO is free cash flow, as it shows how successful we are at actually converting earnings into cash. Primarily through improvements in working capital, we increased this value to 136 million euros in the past fiscal year. It should be noted that in the previous year, we had tax refund inflows of 29 million euros as well as inflows from real estate sales of 57 million euros. In the reporting year, these one-time effects were more than offset by significantly increased operating cash flows. Furthermore, net investments in 2022 were 30 million euros compared to minus 2 million in the previous year. Dividends totaling 196 million euros and 100 million euros for the now completed share buyback program were paid out. Net liquidity including lease liabilities decreased to 145 million euros.
Allow me at this point to briefly review the development in our three business fields. In the Engineering and Maintenance Europe segment, order intake increased by 14 percent to 2.9 billion euros, driven by increased new framework contracts as well as projects to improve customer efficiency and sustainability. Revenue increased, supported by a strong season for major industrial plant overhauls — so-called turnarounds — in Scandinavia as well as increased demand in oil and gas.
The order intake-to-revenue ratio stood at 1.05. In the EBITA of this segment, special effects of 36 million euros are included. These comprise not only provisions for the efficiency program of 30 million euros but also expenses for the withdrawal from the Russia business of 6 million euros. EBITA for the reporting year was therefore 105 million euros, corresponding to an EBITA margin of 3.8 percent. Excluding special effects, EBITA amounted to 140 million euros with an adjusted EBITA margin of 5.0 percent.
In the Engineering and Maintenance International segment, order intake increased by 31 percent to 833 million euros. The strong increase resulted largely from maintenance and repair contracts for customers in North America. This demonstrates that the strategic reorientation undertaken in 2021 continues to have its effect, deploying our maintenance and repair know-how increasingly in North America. Revenue grew by 44 percent to 798 million euros, resulting in an order intake-to-revenue ratio of 1.04.
EBITA improved but remained negative at minus 8 million euros. Special effects were 3 million euros. The EBITA margin was minus 1.0 percent. Adjusted for special effects, EBITA improved to minus 5.3 million euros. The negative result is primarily due to legacy contracts in one business area that will no longer be offered by us in this form going forward. As explained at the Capital Markets Day, it is an integral part of our strategy to reduce risk in the project business and to reduce the share of projects in total revenue from 35 percent to 20 percent. This will primarily be reflected in this segment and significantly contribute to earnings improvement.
In the Technologies segment, order intake increased by 13 percent to 672 million euros, particularly in the pharma sector. Revenue increased on this basis by 6 percent to 592 million euros. The order intake-to-revenue ratio was 1.14. EBITA for the segment was 8 million euros, including special effects of 9 million euros. The EBITA margin was 1.4 percent. Adjusted for special effects, EBITA was 18 million euros with an adjusted EBITA margin of 3.0 percent.
The Group result decreased from 130 million euros to 28 million euros. Several effects contributed to this, including the provision of 62 million euros for the efficiency program, the loss of positive interest effects from tax refunds in the previous year, as well as the loss of these tax refunds themselves. On an adjusted basis, the Group result stood at 82 million euros and was thus only slightly below the previous year's value of 89 million euros.
Our share started the new stock market year with a closing price on December 30, 2021, of 29.90 euros. The profits generated in 2021 enabled us, on the one hand, to pay a special dividend of 3.75 euros per share in addition to the regular dividend of 1 euro per share after the Annual General Meeting on May 11, 2022. On the other hand, as authorized by you at last year's Annual General Meeting, we conducted an additional share buyback program. From July to November, we repurchased approximately 3.5 million of our own shares, corresponding to 8.55 percent of Bilfinger SE's share capital. For this, we spent 100 million euros. The repurchased shares were cancelled on March 20, 2023, with the exception of a residual holding of 200,000 shares.
During the year, the share price exhibited significant volatility and moved predominantly in a range between 26 and 30 euros. The year closed at a price of 27.08 euros. Thus, the total shareholder return — the sum of price performance and dividend payments — was approximately 7 percent. For comparison, the SDAX, in which our share is listed, gained 27 percent over the same period. In the first months of 2023, the Bilfinger share price rose steadily, reaching a level of approximately 38 euros.
Ladies and gentlemen, you can see that Bilfinger is on a good path. With our revised strategy and the efficiency program anchored therein, we have identified the right levers to make our company even more successful in the future. We also want to appropriately share in the positive operating development of Bilfinger with you this year. Therefore, we propose to you today a dividend of 1.30 euros per share. This corresponds to a dividend yield on the year-end closing price of 4.8 percent. The payout ratio based on adjusted Group results is approximately 60 percent, placing it at the upper end of the range of our dividend policy, which provides for a payout of 40 to 60 percent of adjusted Group results.
Together with the revised strategy, we also presented new medium-term targets in February. By 2024, we aim to achieve an EBITA margin of at least 5 percent. In the medium term, that is in the years 2025 to 2027, the EBITA margin will further increase but only to a level of 6 to 7 percent. Organic revenue growth will outpace market growth and average 4 to 5 percent per year. On this basis, we will continuously increase the Group result. A clear goal is to increase the dividend year after year, while carefully maintaining a solid financial position. It remains our objective to achieve an investment-grade credit rating in the future.
In 2022, we renegotiated a syndicated revolving credit facility with our core banks, expanding our previous credit line from 250 million euros to 300 million euros. The availability of funds is firmly committed until December 2027. The credit facility is currently not drawn upon.
Valued shareholders, today we ask for your approval on two capital reserve resolutions for capital measures. Under items 8 and 9 of the agenda, the Executive Board and Supervisory Board propose granting a new authorization to repurchase up to 10 percent of share capital. Under item 10, we request your approval to cancel the existing authorized capital 2023 and to create a new authorized capital 2023 against cash and/or non-cash contributions. This instrument gives us the possibility, with Supervisory Board approval, to quickly and flexibly realize equity financing when necessary and in the company's interest.
Ladies and gentlemen, I thank you for your attention and now hand the word back to Thomas.
T
Thomas Schulz26:20
Thank you very much, Matti. Ladies and gentlemen, as just presented, Bilfinger has a solid financial foundation and clear objectives. What actually makes us so confident? Our most important asset is our highly qualified employees. Furthermore, we have long-standing customer relationships and see sustainable and positive demand in our customer segments and regions.
Inflation, increasing over-regulation, the shortage of skilled workers, and the achievement of sustainability goals continue to pose major challenges for industry — while simultaneously offering considerable opportunities. For the answer to these challenges is technology, and with our expertise, we are well positioned to be part of the solution. We see ourselves as a driving force in the transformation of industry. Our goal is clear: we want to become number one in increasing efficiency and sustainability for our customers as an industrial services provider.
The success of our strategy is based on consistent implementation, and we are willing to be measured against this. Overall, we expect sustained positive demand with market growth of approximately two percent per year over the next three to five years in our markets of energy, chemicals, and petrochemicals. However, we do not want to rely solely on market growth. Therefore, we will expand our product offering along the value chain, as approximately 80 percent of Bilfinger's services are similar or identical across all process industries. We will do this with due regard and will first fully exploit the potential of the markets in which we are already active and where we have built a good reputation under the Bilfinger brand.
Subsequently, we will seize opportunities in adjacent markets whenever they arise and are achievable with reasonable economic effort — especially when our existing customers expect it from us. This will achieve additional growth of approximately two to three percent annually. We are also open to acquisitions, which we will pursue when they fit our existing offering, strengthen our regional presence, and above all support our aspiration to become number one in efficiency and sustainability in our markets.
At the same time, we will divest activities in the medium term that do not contribute to achieving this goal. Our business model is based on improving efficiency and sustainability for customers and for Bilfinger itself. The value generated forms the basis for Bilfinger's economic development. The growth potential of target markets on the one hand, and the expansion of the value chain on the other, offer additional opportunities for Bilfinger to position itself as a partner for complete solutions.
Our business model has proven extremely resilient in the recent past, because Bilfinger is in demand not only when companies expand their production capacity during growth phases. Existing plants must also be continuously maintained and optimized in day-to-day operations. In the face of volatile energy prices and growing political pressure to reduce production costs and CO2 emissions, our customers need ongoing support. We are the ideal partner because through our technical competence, we can not only execute maintenance contracts but also actively contribute improvement proposals that directly pay off for our customers.
And even when companies reduce or relocate capacities, our customer service remains important, because a complex industrial plant or power station cannot simply be switched on or off with the push of a button. Such work often takes several years, for example in the decommissioning of nuclear power plants in Germany, in which we are significantly involved.
With regard to the energy transition, we are optimistic about Bilfinger's opportunities. We have built up expertise in conventional energy sources over decades, which we continue to bring to bear for our customers and develop further every day. At the same time, we are expanding our portfolio for renewable energies at a high pace. We are currently involved in several projects dealing with hydrogen as an energy storage medium for renewable energies, and in nuclear energy we remain in demand as a partner, for example in the construction and operation of power plants in Great Britain and France.
Internally, our strategy of operational excellence is also being implemented in a targeted and swift manner. Bilfinger will achieve the goal of improving its own efficiency through, among other things, the standardization and bundling of products as well as enhanced innovation and digitalization. The focus is also on promoting framework and service contract business, with a future share of 80 percent of total revenue — currently just under two-thirds. Through consistent implementation of this strategy, we will significantly improve profitability, particularly in the Engineering and Maintenance International segment. The efficiency program running since November 2022, which envisages annual savings of 55 million euros, also contributes to achieving the Group's strategic goals.
Ladies and gentlemen, the key to greater sustainability in industry is technology. Technological progress and the continuous improvement of efficiency and sustainability at our customers also bring new requirements to our teams. Therefore, a central component of our efficiency program is to continuously invest in the training and further education of our skilled workers, particularly in the commercial area. We are giving everyone the opportunity to grow together with the company and reach a new level of quality.
Sustainability and efficiency are at the core of our corporate strategy. As announced at the last Annual General Meeting, we have intensively engaged with this topic and set clear targets in the three sustainability categories of environment, social, and governance. We carefully ensure the careful use of valuable resources in our daily work and face the urgent task of limiting climate change as much as possible.
In the area of environment, our goal is to become climate-neutral for our own Scope 1 and 2 emissions under the Greenhouse Gas Protocol by no later than 2030. In 2023 and 2024, we will also gradually measure emissions data for Scope 3. Based on the complete collection of emissions, we will submit the intended reduction pathway of greenhouse gas emissions to the Science Based Targets initiative for validation. We have made a binding commitment to this step just a few days ago. With this, we will contribute our part to limiting the warming of the Earth's atmosphere to a maximum of 1.5 degrees Celsius.
In the social category, we follow with great emphasis our aspiration to prevent every workplace accident as far as possible. Furthermore, we will invest at least 0.5 percent of Group revenue annually in targeted training and further education of Bilfinger employees. In the area of governance, we took another important step in 2022 with the adoption of our policy statement on respect for human rights. To effectively fulfill our due diligence obligations in the Group's supply chain, we have set the goal of conducting at least 600 internal supplier audits per year from the 2023 fiscal year onwards, based on defined standards.
Ladies and gentlemen, you can see that Bilfinger is well-positioned to seize the opportunities that arise. In 2023, we will roll out the further-developed strategy across all areas of the company. At the same time, we will fully implement the efficiency program by the end of 2023, so that we will see initial effects already in the 2023 annual results. The ongoing challenges for industry in improving efficiency and sustainability will also generate profitable growth at Bilfinger in 2023.
Our outlook is therefore positive. For 2023, we expect revenue between 4.3 and 4.6 billion euros. Profitability will increase to an EBITA margin of 3.8 to 4.1 percent. Free cash flow is expected to be lower than in 2022, between 50 and 80 million euros, as we will spend approximately 60 million euros for the efficiency program in 2023. But it is also clear that we are not satisfied with our current financial performance. We continue to have our 2024 goal in sight of increasing the EBITA margin to at least five percent, and with the measures outlined, we will reach this goal.
The commitment and qualifications of our employees are decisive for the company's success. In their daily work for our customers, they represent Bilfinger, its values, and its competencies. For this, we as the Executive Board expressly thank you. To you, esteemed shareholders, I thank you on behalf of the Executive Board for your trust and your consistently constructive engagement. I look forward to jointly establishing Bilfinger as the number one partner for efficiency and sustainability for industrial companies.
At this point, we will show you a short film that further underscores this goal. Afterwards, I will hand over the word to our Supervisory Board Chairman, Dr. Cordes.