Bilfinger SE (GBF) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen. Welcome to Bilfinger's conference call on the acquisition of Fluor's Stork industrial services business. We know this invitation was in short notice. All the more, thank you for joining us today. My name is Bettina Schneider, and I'm here together with our Group CEO, Thomas Schulz; and our group CFO, Matti Jakel. [Operator Instructions] Please be aware that the conference call is being recorded. With this, I would like to hand over to Thomas Schulz.

Thank you, Bettina. Hello, everybody out of beautiful Manheim. Today, we would like to talk about the acquisition of Fluor's Stork industrial service business, predominantly in the Netherlands and Belgium through us, the Bilfinger Group. First, the transaction highlights. This acquisition is a fantastic, perfect strategic fit and fully in line with that what we said at the Capital Market Day in February this year. We will add 2,700 skilled employees, predominantly blue-collar employees. It will be EPS accretive from closing on. And for our customers, we will be able to offer the full competence line of Bilfinger. So a strong value add for our clients. And it strengthens our profitable growth, and of course, it supports our midterm targets. If we then look into our strategy, our strategy is to be #1 for our customers in enhancing efficiency and sustainability. And we communicated that we have 2 main directions to realize that strategy. One is the internal efficiency improvement through efficiency program as well as the operational excellence and the other one is through positioning of Bilfinger into the efficiency and sustainability area. And this is where we with the acquisition, future acquisition of the Fluor's Stork industrial service business will go. It will support and realize with it a growth of 4% to 5% per annum, an EBITA for next year of 5% and 6% to 7% in the years, '25 to '27, as well as a good cash conversion, which is for 2024 on more than 70% and in the following years of more than 80%. We integrate or we will integrate the Stork business into our segment, E&M Europe. On that slide, you see what E&M Europe is about. And Belgium and the Netherlands, BeNe region as we call it, is a very important and high-performing region with a very good setup of managers, supervisors, blue-collar colleagues, a fantastic, good relation with the customer base. When you look into that, you see that we are especially very strong in the engineering, new builds and maintenance and turnaround area, whereas the digitalization and consultancy is an average. But that is the overall picture, and we will show you later what in detail the combined business will offer to our clients. The revenue what we realized in 2022 is roughly EUR 2.8 billion, and you see that Belgium, Netherlands roughly make 18% of it. In the mid part on the verticals, you see the industrial split of the existing segment E&M Europe. And there, chemical and petrochem with 40%, oil and gas with 25% and of course, the well-developing energy sector with 10% and biopharma with 5%. And on the right side, you see the headcount of our BeNe region with roughly 12% in the existing part. The profitability of that segment was 5% in 2025 if we -- 2022 if we adjust for the efficiency program. When we look into the business, we are intending to take over, we call it the transaction scope. It is in the service portfolio from a geographical split and in the verticals, a perfect fit with more or less no overlap. This is very important for us and was communicated well since February on all the meetings, why that is important for us as Bilfinger. This business is especially strong in the consultancy as well as in the maintenance and turnaround. We talk here for 2022, a business of more than EUR 520 million. And there, the biggest part, close to 80% is in the Netherlands, more than 10% in Belgium. Germany and U.S. is on a quite smaller part. The business verticals are 60% in the chemicals and petrochemical and 20% in the energy, 15% in oil and gas, and 5% in others. The headcount, and that reflects, of course, the revenue split, is predominantly in the Netherlands and in Belgium, and that is 2,720. The profitability in 2022 was 3.3% EBITA. As I said before, on a revenue of EUR 528 million. Now the combined business. This is a step from a good industrial service provider, especially in ISP and engineering, we as Bilfinger in the BeNe into being the solution partner for our customers in Belgium and the Netherlands. Because what we have is a big part of the business in the engineering and a quite big part in the ISP, insulation, scaffolding and painting. Where Stork is quite strong is in the maintenance part and in the overall maintenance, in the mechanical and in the electrical part. Both together is that what we say we are heading for the #1 as the efficiency and sustainability provider as a solution partner of choice for our clients. You see with the verticals that we are actually covering more or less the same areas. In geography, I can tell you that we have more or less no areas where we are together on one side. It's a perfect fit from the geographical split, too. If we then look into the combined business, how it will impact E&M Europe, there, you see that Belgium, Netherlands is going up in the revenue from 18% to 30%. And in the combined verticals, others will go down and chemicals and petrochem will go up a little. If it comes to the headcount, we will have, as in the other part, a more equal situation in E&M Europe for the different regions. Out of that, why is it in line with our strategy? We informed quite transparent in the mid of February, how we formulate it and how we execute and how we transparently do and will do more report into the capital market what we do in the strategy execution, which kind of strategic levers we are using and which effect it has. In the functional organization, this business will be, on the day of closing, fully integrated into our organization. It will be add on the structure of what we have. With that, we will have quite quick functional organization with increasing efficiency and realizing cost synergies from day 1 on. If we then look into the competence development, which is so important in that market where we have a lack of especially blue-collar skill workers, we get into Belgium and Netherlands around 2,300 top-performing, well-educated people in and being part of the Bilfinger family from day 1. We will invest into that group as we invest in our existing group because the investment into training and education and innovation is for us mandatory to fulfill our strategy. The standardization and bundling is in such an offering as a solution partner with these products, what I said before, easier and can add significant more efficiency values to the customer. Then the last one, the market expansion. This is what we promised to the market, which is part of our strategy that we go into areas where we are already existing, where we understand the culture, where we understand the customers, where we understand how to do business, and we look that we add products into it what we have in other regions already quite well on the way and very profitable in growth. And this is 100% the case here with the Stork acquisition for our group. Out of that, I would like to go with Matti Jakel into the financial deal rationale.

Okay. Thanks, Thomas. Yes, not only from a strategy point of view is this transaction very interesting but also financially, it has quite some positive perspectives. The purchase price of EUR 26 million is fully funded from our existing cash. The valuation is quite attractive. If you add back net debt and debt-like items, you arrive at an enterprise value of around EUR 76 million. And if you then compare this to the EBITA of 2023 estimates of EUR 15 million, then you arrive at a multiple of around 5. We expect to spend some restructuring and integration costs over a span of 12 to 18 months after closing of about EUR 18 million. And also this, we believe, makes the deal very attractive. As Thomas said earlier, it will be EPS accretive basically from day 1 after closing. The time line is as follows: Signing happened last night on September 6, 2023. The parties expect the closing to happen in the first half of 2024. The deal is subject to anti-competition rules and so forth. And the integration should be completed by the middle of 2025. The transaction overall supports the achievement of our midterm targets, which have been outlined first time at the Capital Markets Day in February of this year and then repeatedly communicated during our quarterly announcements. In 2024, we expect an EBITA margin of 5% and in the midterm of 6% to 7%, and these transactions will support these targets. The outlook for this year is confirmed as this transaction will only affect 2024. Again, this slide show -- has been shown quite a number of times. M&A has been on our radar screen and on the agenda, and we are extremely happy to report this only 6 -- 7 months after the Capital Markets Day that we have been successful in, what we believe, striking a very good deal on the M&A front. And with that, I hand it back to Thomas.

Thank you, Matti. So to summarize again, it is a perfect strategic fit, as we said and described quite detailed in -- since the Capital Markets Day as part of our strategy. It's no new endeavor. We go in an area what we know, we go with products what we know, and we go with people into it we already know as peers for a very long period of time and highly appreciate that. And that all in an organization which is in the Bilfinger world already well-performing. These 2,700 additional skilled employees will help us to tackle fairly quick the lack of competent, educated and motivated blue-collar workers. It is EPS accretive from closing day on. It creates with the offering, with the geographical split, with the competent centers, with the innovation, a strong value add for our clients. It strengthens our group's profitable growth, and it supports, of course, our midterm targets as we communicated quite a lot. With that, I would like to say thank you, and back to Bettina.

Very good. Thank you, Thomas. [Operator Instructions] First question comes from Christoph Dolleschal, HSBC.

Congrats, it seems to be a pretty good deal. Three questions on my end. As far as I remember from old presentations, so far, I think you were the #2 in the Benelux region. So with that transaction, I would assume because I think they were the #1 that you are now by far going to be the #1 in the Benelux region. So that's question one. Question two is what are the main clients there? I mean it's obviously the chemical guys as far as I can see in the presentation. So is there some sort of synergies between other regions? Are some of the clients the same where you can probably get additional business out of? And three, any specific reason why Fluor respective Stork is selling the business?

Yes. Christoph, thanks a lot for the questions. At first, the -- of course, for the definition, what is #1, #2, #3, you have a lot of different KPIs. We define ourselves that #1 means that we are the most efficient in the offering towards the customer and the customer recognize that. It's not about the profitability. It's not about the size. And of course, our target is, with that acquisition, to achieve that in BeNe. Second, regarding with the clients, it's actually petrochemical is the big part of the business in Stork. It's more petrochem than chemical. And that is quite a good fit for us. And the reason -- or the customers what they have, quite a lot of them we have on the ISP part. We see the Stork colleagues for decades working on the same site as we work and on other sites where we are not really in -- I can be quite transparent here like honing in, we are as BeNe region not that exposed as Stork when we are a little bit more exposed than Rotterdam, for example. And that is a perfect fit from a geographical point of view too on top of all the others. Specific reason why Fluor is selling the business, actually, you have to ask Fluor for that. But we see, in general, in the industry as more complex it gets as more pure-play companies are demanded, which means if you are -- as we are on industrial service and really looking through the whole value chain to increase efficiency and sustainability in industrial service areas, you are very competitive. Maybe that's one of the reasons why Fluor was thinking about to sell that business. But at the end of the day, you have to ask them. Thanks a lot.

Okay. Probably one quick follow-up on the margin side because, obviously, they are below your targeted margin, also below your margin. And if I understood you correctly, because you didn't change your midterm guidance, that means that you think that you can bring that business to the 6% to 7% margin in the next 3 years, right?

Christoph, this is Matti. Yes, good question again. Thanks a lot. We do see by the number of synergies with the deal between our BeNe organization and the Stork BeNe organization, this is on the revenue side, where we see cross-selling potentials, as Thomas said. They are on sites with services where we deliver different services, but we also are on sites where they are not and vice versa. And there is cross-selling potential in terms of maintenance management solutions, rotating equipment and some parts in the geography. On the cost and profitability side, we see scale effects. We will integrate their operations into our existing backbone, which is extremely strong in Holland and Belgium, and there we can shave off loads of millions of euros in admin costs. The additional revenue will come with very good margins. And then they have some businesses that we know we can do a lot better and make more money. And hence, there's productivity gains to be had from applying Bilfinger know-how and Bilfinger processes and systems pretty much from day 1 when they will join us.

Next question comes from Craig Abbott, Kepler Cheuvreux.

Yes, well, my margin question was just addressed. So my remaining question is just on your M&A pipeline beyond this deal. Is there -- do you have anything else in the works that could potentially materialize, say, in the next 6 to 12 months? Or is the focus now going to be primarily on integrating the Stork acquisition?

The -- of course, we always look around for M&A. That's a general work of management. But of course, as you know, we further develop the strategy at the beginning of the year with quite a lot of things in it like rollout of the functional organization, efficiency program, then we have a market in all geographies, in all industries growing for us, positive outlook, and we look, of course, into that we are not overloading the organization. On the other side, we were very specific what we are looking for. It has to fit into our strategy. This is really important. We call it the M&A window. That means a business what we are interested in has to be more or less all what we take, we have to use in the Bilfinger Group. We are not good in buying something and then selling off 70%, 80% of that business to a third party as well as that we get business in areas where we are not having these products but in the product range where in other regions, we have a lot of competence. So if something goes not that well that we have enough people available to step in from our existing group to help and to support, that makes deals from a risk profile very low. Then, of course, it has to deliver total shareholder return. And that demands in our point of view, as our figures are, of course, always a very, let me call it, efficient purchase price what we can only allow. And with all of that, you can imagine, it's quite a limited group, which is then the leftover. But we are, of course, in discussion.

Next question comes from [ Mark Zettel ] of [indiscernible].

I think that obviously looks like a fantastic deal, and congratulations on that. So maybe -- and I mean, that's again on potential acquisitions. But what you mentioned as a pure-play advantage, does this applies to maybe to other businesses like Cape or [ Wood ] where you could do better than these holding companies owning them? That's the first one. And then I have a follow-on.

Yes, I will not talk about Cape or Wood. In that case, it's about us as Bilfinger, and we are in very, very close contact with our clients up to the highest level in our group, myself too talking with them, and they are -- thanks God, they are very outspoken what they need, we are very outspoken what we can offer, and we are driven by helping them to get more efficient. This is really important nowadays in all geographies, in all industries. So we see us as an industrial service provider as a pure play. And a pure play for us is not a company with one product. It's a company helping the customer in a defined value chain to improve their performance. That is what we -- where we earn our money on. What is your second question, please?

Okay. The second question is if you -- I mean, how do you compare business quality of what you are buying against Bilfinger, right? And I'm talking about maybe things like the strength of customer relationships, capabilities, your workforce knowledge.

Yes. The -- we make it -- at first, we did it quite simple. We ask our own organization with whom they work together on sites with peers and which ones are actually from a mentality point of view, from a competence point of view, from a teamwork point of view, the best ones. And in the area of Belgium and especially the Netherlands, Stork name popped up quite a lot. It's a fantastic, good work with them, no matter that some would call us competitors, but we work together. And quite in a lot of cases, they are actually together with us realizing maintenance work. We build the scaffolding, we make the insulation and they do the mechanical maintenance, and that's a perfect fit. Second, when we look into the group of people we take over, by far, the majority are blue-collar people, and that is what we are interested in. We have a strong engineering setup in the Netherlands, very good people, and we have a lot to do, but we have significant more demand on the blue-collar side. And not -- by the way, not only in Belgium and in the Netherlands. And that with that competence and ability what they offer us, we will grab that on the customer side, too. Then last but not least, our customers are demanding more efficiency improvement coming from their suppliers. And in industrial service, it is so complex for them with the sustainability demands to report on water consumption on CO2 and so on. They need competent partners to do that. They don't need 20 partners. They need 1, 2 or maybe 3 partners being very professional. The Stork team, together with our perfect performing team in Belgium and Netherlands, will offer that to clients. And that will be a success.

[Operator Instructions] The next question comes from the chat. I read it out loud. Nicolas Tabor, Moneta. First question, can you please expand on the turbo blading activity acquired in this deal?

Yes, there is one part of the business is, of course, the so-called turbo blading activities or turbo blading business what we have. It is an industrial service business with additional work on improving turbo blades. So it's not only a factory or a workshop doing turbo blades, it's actually -- the focus is on the industrial services business. We have a similar thing already in Bilfinger with pumps. We repair tons -- thousands of pumps per year for our customers in our workshops on customer side when we do maintenance and efficiency improvement. That will enable us to add another part in the efficiency improvement to the clients. In that case, of course, related with the turbo blades. Then with the timing of the restructuring?

Yes, the next question was what is the timing of the EUR 18 million restructuring integration? Is it 100% cash impact?

Based on the expectation that closing will happen in the first half of 2024, and the integration should be completed somewhere 12 months later, we expect to spend that money during that period. So part of it will affect 2024 and the other part, 2025. And yes, this will be 100% in cash.

We are currently done with the questions we got. We wait another half a minute. [Operator Instructions] It's not fully half a minute, but I think we are done. So there are no further questions right now. If there are more, please don't hesitate to contact the IR team. And thank you very much for your participation. Goodbye.