Friedrich Vorwerk Group SE (VH2) Earnings Call Transcript & Summary

Good day, and a warm welcome to today's earnings call of the Friedrich Vorwerk Group SE following the publication of the first half year figures of 2025. The CEO, Torben Kleinfeldt; and CFO, Tim Hameister, will give us a presentation shortly and guide us through the results. [Operator Instructions] So we're looking forward to the presentation. And with this, I hand over to you, Mr. Kleinfeldt.

Yes. Also from my side, welcome to half year's earnings call of Friedrich Vorwerk Group SE. Today's presenting team is our CFO, Tim Hameister; and myself, Torben Kleinfeldt, CEO of the company's Group or myself, 25 years in the business with Friedrich Vorwerk by now, and today responsible for the overall strategy of the company's group, and I'm still looking in very detail into some hydrogen projects, which hopefully will be developed in the next time. So for this presentation today, we'll first give you a short introduction about the activities of our companies group for those who are not 100% familiar with our business at the moment. And afterwards, I will give you a short market update on what is going on in the energy infrastructure market here, especially in Germany. And then, of course, I will hand over to Tim for the financial figures and come back later with some very interesting projects we are -- we have just been awarded and that we will be executing over the next month and in due course of next year. So for everybody who's not 100% familiar with our company group, short introduction. Friedrich Vorwerk has been founded in 1962. Since then, always been active in the sector of energy infrastructure. So in the end, we are capable of developing new energy infrastructure projects in terms of cables, pipelines and also other buried infrastructure, which is able to transform energy, for example, clean hydrogen, and our adjacent opportunity where we cover all our activities in terms of district heating, water main lines, but also biomethane treatment. As you can see on this slide, on the left-hand side, our branch offices are well located in the north of Germany, covering vast area of Northern Germany, where most of the activities of the company's group are going on. Over the years, we have developed very strong ties to our customer. On the right-hand side, some of our customers mentioned here, of course, the large TSOs like Amprion, TenneT from the cable side and also players like Gasunie, Ontras and Open Grid Europe on the pipeline side. But you will also find here some cable producing entities like NKT, Prysmian, where we execute mainly cable lines, which connect the offshore wind farms with the onshore inverter stations. And of course, over the last years, the energy transition going on in Germany has boosted our growth. And today, with an order backlog of roughly EUR 1.1 billion, very strong order backlog for the future and also for the upcoming year. So what is Friedrich Vorwerk actually all about? I think the next slide can show that quite well. For example, we are able to engineer and execute large pipeline systems. So for example, taking over regasified natural gas from LNG terminals or from a border connection station. Then we are able to do the engineering and also the execution of large-scale and long-run pipeline systems with all adjacent stations that are necessary to run those pipeline grids. So for example, storage facilities are necessary, but also compressor stations to boost the flow in the pipelines and actually bring the gas to the consumer. And at the very end of this downstream pipeline, so to say, we have gas pressure regulating and metering stations, which are responsible for supplying the gas in the right quality, in the end, also in the right pressure and in the right amount to the customers. And of course, in these stations, the gas flow will be metered for later invoicing of the customers. Basically, the same setting is also true for the future hydrogen grids, which we see on the bottom of this slide, with one difference, except from the pipelines and also the compressor stations that are needed in the hydrogen pipelines, it requires electrolyzers at the very beginning of the production because hydrogen can usually not be found in nature. So it needs to be produced by mankind. And that's why Friedrich Vorwerk also able to set up large electrolyzer systems, where actually water and electricity is converted to hydrogen. And in the middle, the cable systems. Usually, our cable projects start with a landfall of the cable systems coming from offshore wind farms. They are being pulled onshore by means of horizontal directional drilling, which we can engineer and also execute. This method is usually used to [indiscernible] very sensitive areas of nature at the north and in the Baltic Sea. And then we can run these cables underground to the next transformer or inverter stations. And of course, Friedrich Vorwerk also able to set up power-to-heat systems. So when electricity is in excess in the grids, it can be transformed to heat and can be used in the households for heating purposes. And then maybe on the next slide, short market uptake because it's a very new development. We had a plan already in the 2016. Germany had planned on the CO2 transport grid. So basically catching all the CO2 from the large power stations in the Rhine-Ruhr area and bringing it to the North Sea and then dump it in old oil fields or gas wells. And now Germany has just ruled out a law that Open Grid Europe is able to set up a CO2 grid again to collect these hazardous gases and transferring it mainly to Norway, where it will be stored for a long period of time. First, estimates of this grid will be an approximate length of 1,000 kilometers. It will be all new-build pipeline because existing gas pipelines can -- natural gas pipelines cannot be converted to CO2 pipelines. And also this first CO2 start grid, so to say, has some -- roughly EUR 14 billion as it is planned and shown on the little map of Germany here on the left-hand side. So newest development and of course, setting up the CO2 grid will be excellent new business case also for Friedrich Vorwerk in engineering and also setting up those CO2 grids and the adjacent stations. So yes, after this new development, I would like to hand over to Tim for some financial figures.

Thanks a lot, Torben. Good afternoon, ladies and gentlemen, and welcome to Friedrich Vorwerk's earnings call on the H1 figures. My name is Tim Hameister, CFO of Vorwerk, and I'm very pleased to walk you through our very strong half year results and the updated outlook. But before we dive into the figures, we've summarized the key news items on this slide. First and foremost, we were delighted to announce the listing of Friedrich Vorwerk Group SE shares on the SDAX small-cap index in April. Since then, we've climbed a good 30 places in the rankings to reach the middle of the table, where we've maintained our position. In addition, there were many positive market developments in the first half of the year, starting with the decision to allocate the special funds for infrastructure and also new estimates of the investments required to renew and expand the drinking water and sewage grids in Germany as well as further political progress on the CO2 storage and the corresponding pipeline transport projects. So yes, let's continue with the top line development in H1. Following historically strong first quarter, our growth momentum continued virtually unabated, supported by favorable weather conditions, very high capacity utilization and continued strong growth in qualified employees. We increased revenues in the second quarter by 45% to EUR 170 million, which is Vorwerk's highest quarterly revenue to date. In addition to the north cable route, many new projects such as the BorWin6 cable route in Schleswig-Holstein and some projects that restarted after the winter break, such as the multiyear drilling project in Wilhelm, which will only be worked on in Q2 and Q3 each year, contributed to the strong revenue growth in Q2. This led to outstanding revenue growth of 56% to EUR 303 million in the first 6 months. As already announced in recent presentations, this growth is mainly attributable to electricity segment, which now accounts for more than 50% of group's revenue in H1, while the other segments remained roughly at previous year's level in absolute figures. The development of profitability in H1 and in particularly in the second quarter of 2025 is all the more encouraging. In the second quarter, we increased the EBITDA margin by more than 6 percentage points to 21.3%, achieving the best quarterly margin since the IPO in March 2021. This very rapid and successful turnaround of profitability after the transition year 2023 was made possible by a very good project execution, better operating leverage and a strong project mix. The improvement in earnings can be observed across all segments, which is the largest improvement in the Adjacent Opportunities segment, which benefited from a high demand in the district heating and biomethane subsegments. The EBIT margin even rose by almost 7 percentage points to a new record high of 17.6%, corresponding to EBIT of EUR 30 million alone in Q2. Accordingly, we generated EBITDA of EUR 54.5 million in the first half of the year with a margin of 18% and EBIT of EUR 42.7 million. These fantastic results include minor catch-up effects in the low single-digit million euro range from amendment negotiations, but the vast majority was achieved with ongoing projects from our very high-quality order backlog. But we also reaffirmed our outstanding market position in terms of order intake. In the second quarter, in particular, we secured several major projects. These include, for example, the 86-kilometer long ETL 182 pipeline, the third construction lot of the South German natural gas pipeline and also construction lot 3 of the SuedLink Electricity Highway, but also small and medium-sized projects such as several sections of the Hamburg hydrogen grid and inner city cooperation construction projects in which we are renewing several systems in parallel, such as drinking water and sewage, power lines and telco lines. And in these projects, we benefit from the fact that we as Vorwerk Group have approvals and permissions for each of the different infrastructure operators. We've also introduced a new key figure in the H1 financial statements, so-called total acquired project volume. Since all major projects in this half year were awarded to joint venture, which we call [indiscernible] in Germany, the pure order intake of EUR 220 million is significantly lower than in previous year. This is because in this constellation, we are only allowed to show the supply of personnel and equipment by Vorwerk to the joint venture as order intake, which does not reflect the actual construction volume. The new key figure, total project volume acquired also includes the proportion of project volumes from these joint ventures and in our view, enables a more transparent presentation of the services provided by the Vorwerk Group regardless of the type of the contract structure and award procedure. The total project volume acquired rose by 42% to EUR 613 million in the first half of 2025. The order backlog, which corresponds to order intake declined slightly to EUR 1.1 billion for the reasons stated before and currently consists of around 70% electricity projects. Then we also have a look on the balance sheet, which remains very strong and also relatively unchanged compared to December 2024. We've continued to invest in our noncurrent assets such as drilling and in Q2, especially in welding equipment for our subsidiary, 5C-Tech. For seasonal reasons, working capital again increased compared with the end of the year. However, the working capital management, which was a key priority in the last 2 years, has achieved continued positive results. Therefore, our net cash position has improved by EUR 95 million compared to Q2 2024. And as in the previous year, of course, a clear positive free cash flow is expected for the 2025 financial year as a whole. And yes, due to the fantastic performance in the second quarter, we revised our guidance for the 2025 fiscal year upward last month. We now expect revenues in the range of EUR 610 million to EUR 650 million, which corresponds to growth of 30% at the upper end. Furthermore, we expect the EBITDA margin to improve by 1.5 percentage points to be between 17.5% and 18.5%, which already takes into account the usual uncertainties inherent in our business model. And even at the lower end of both ranges, we will, therefore, achieve EBITDA of more than EUR 100 million and EBIT of more than EUR 80 million this year. Yes, let me now hand it back to Torben for some updates on the ongoing projects and also on our recent M&A acquisition before we open the floor to your questions.

Tim, thank you very much. And of course, you already touched on some of the projects. First project, very proud of is the award of ETL 182, which is a natural gas pipeline projects, is run by Gasunie Germany. The pipeline is actually already made hydrogen ready. So in the first stage, this project will carry natural gas from the LNG terminal in Stade at the river Elbe and transport it towards the infrastructure -- existing infrastructure close to the city of Bremen. Pipeline is a 56-inch pipeline, so a very large diameter. That's already made for the future use of hydrogen because hydrogen, of course, is less energy dense than natural gas. So it requires larger diameter pipelines. Whole pipeline track here is roughly 90 kilometers. Some of that is very difficult terrain for constructing in. So we are very, very proud that Gasunie handed over this job to the combination of Vorwerk and Habau. And we have already started executing some of -- in parts of the pipeline track, the pipe storage yards because the pipe for the pipeline will be already delivered in October this year and main construction activities are expected to start in February next year. Next project, almost in the same region of Germany, running more or less parallel is the cable system. It's actually the lot #3 of the SuedLink. Basically, this lot picks up the cable route from the so-called ElbX, which is a large tunnel system crossing the river Elbe with a double cable system, and we'll pick up the cable from the tunnel shafts and then run it in southern direction towards the city of [indiscernible]. Total length of the lot is 43 kilometers. In the end, 2 cable systems in parallel, a lot of horizontal directional drillings have to be performed here. And also here, we are in a joint venture with Wilhelm Wähler and Matthäi. Friedrich Vorwerk with its subsidiary, Bohlen & Doyen, mainly responsible for HDDs and some civil works here on the track. And looking at the next market section is actually a hydrogen project is called Hamburg-WIN, which is the setup of a hydrogen grid in the Port of Hamburg. Key figures here are 100-megawatt electrolyzer, which is set up in the port area. And then in the end, a hydrogen grid within the end 60 kilometers of length in numerous diameters, which is able to supply industrial customers in the port area with clean hydrogen. Friedrich Vorwerk is -- besides able to execute the electrolyzer works or the -- what we call the balancing of the plant works on the electrolyzer, but also we have already been awarded a couple of lots to set up the hydrogen grid in the port area. And actually, 2 lots have already been handed over to the customer. So this project in parts is at least finished for Friedrich Vorwerk, but also there will be other sectors of the hydrogen grid being awarded in the near future. And of course, we hope to also gain some [indiscernible] in the hydrogen grid here in the Port of Hamburg because it's right in front of our doorsteps. Next project is from Adjacent Opportunities. It's actually -- the main scope is to renew a water main line, which is running in the street in Hamburg called Elbchaussee. It's a very old water line constructed around 1,900 diameters, 850 millimeters, and we'll basically take out the old water pipeline, put a new one. And besides the water pipeline, of course, all other energy infrastructure like gas mains, electricity cables but also fiber optics will be renewed in the area. We will reconstruct the water pipeline. Here, we are together in a joint venture with Strabag, our own subsidiary, Gottfried Puhlmann and Friedrich Vorwerk. Activities have already started. And for everybody who has been recently to Hamburg, of course, we have been responsible for the one or the other traffic jam in the area of west of Hamburg because that the [indiscernible] mainly blocked due to the construction works. Yes. And last but not least, our company's group has grown again. We were able to take over a branch office of Christoffers in Brunn, which is in the [indiscernible] northeast of Germany. The company has roughly 35 qualified employees in the field of drainage construction, water construction, also heat and water mains. If you look at the map, Vorwerk is not really represented in the northeast of Germany. So this branch office is a very nice place. And we do expect further cable projects and also pipeline projects in the area of Northeastern Germany. So this is a very good branch office to start activities on these new projects. And not only in terms of M&A, we are active and quite satisfied with the success, but also our growth in terms of employees has been almost up to the target this year. We have grown from 1,948 to more than 2,100 employees so far this year. So looking at the rest of the year, 10% growth in headcount is still possible for this year. And of course, we are also happy that we were able to acquire a lot of good and well-trained and qualified employees for the upcoming and very challenging projects we have to deal with. So that was it from my side and also from the current projects. And I would hand back to you, and we would be ready to take your questions.

Yes. Thank you very much for your presentation and dive into your numbers. [Operator Instructions] And we already have our first hand up from Mr. Lasse Stueben.

Two questions, please. Just on A-Nord, just in terms of where we are in the progress of that project. Is it fair to say Q2 and Q3 will be peak revenue contribution from A-Nord? Or can you help us just on the time line there, just given how your progression has been? And then the second question I have is on the segment profitability in natural gas, which was very high in the second quarter. I think you're almost above 30% EBITDA. So just curious to hear what's happening with that profitability.

Lasse, thanks for the questions. Regarding A-Nord, we have pretty good progress on the sections in Lower Saxony, although it's foreseeable that there will be some delays in the sections in North Rhine-Westphalia due to the lack of building clearance there. And we are currently in discussions with the client to adjust the relevant targets, also file our bonus-malus clause. And I think we will be able to report more on this in detail in the coming or -- in 2 quarters. And regarding the revenue, as I said, we are mainly working in Lower Saxony, which is our part. Your assumption is right that we will see the highest revenue from A-Nord in 2025, yes. Regarding the question on the segment profitability, as I said earlier, we had some minor effects from the amendment negotiations, positive effects. And these were reflected both in natural gas and the adjacent opportunities segment.

Okay. Great. And then one more, just on the acquisition that you made. Was that done already in the second quarter? Or is that in Q3?

The second acquisition this year was beginning of August this year. So just as a refresh.

Okay. So that's not included in the headcount you provided.

[Operator Instructions] And with this, Mr. Stueben, another question, please.

Yes. Just one follow-up, if I may. Just in terms of the typical seasonality you usually have in the business, I'm just wondering, has that somewhat changed given the strength in the second quarter? I mean, should we assume Q3 is roughly in line with Q2? Or has there been anything to mention in terms of weather or anything else that's affected your performance in Q3? And then Q4 does tend to be the strongest quarter of the year from -- pretty much from all standpoints. So I'm just wondering, does that hold this year again, given how strong you've been in the first half of the year?

So the start in the second half of the year, especially in July, was not that good in terms of the weather conditions. We had a lot of heavy rain events in July. But apart from that, usual, the Q3 is in line with the Q2, if you look at the historical figures. And then the profitability in the last quarter is also partly depending on the success on the claims negotiation, which typically take place with the final invoices in November and December. Yes. But as you can see, we've already given a pretty strong guidance also for the full year. So nothing to worry about.

No, I would say nothing changed in general. Of course, we cannot influence the weather. But I think so far, except from the heavy rains in July, we did quite well on all of the projects. And let's hope that we get a very dry and nice fall this year, and then I think we can still see some nice figures at the end of the year.

And we have one more question in our chat box. Can you reiterate your IPO targets for EBITDA guidance for 2030? Do you expect to meet or exceed this now that some time has passed since then?

So during the IPO, we've drawn up our, let's say, vision -- 10-year vision, and we envisaged revenues of EUR 1 billion 10 years after the IPO. Given the current growth trajectory, I think we are in a pretty good position to be able to reach that if we are still successful in hiring new employees. And also in terms of the margin, we always said we want to grow to EUR 1 billion and keep the margin we had back in that time, which was around 20% EBITDA. And I think we've already shown with this strong Q2 that we are pretty close to that at least.

Can you explain again the difference between total project order intake and order intake?

Yes. This -- as I said, this is a new KPI we've introduced due to the fact that some clients tender their large-scale projects only to joint ventures. And then this constellation, we are only allowed due to the accounting principles to post the share of Vorwerk machinery and personnel, which we, so to say, rent to the joint venture as order intake, but it doesn't reflect the, for example, materials and other stuff, which is directly procured by the joint venture. So we've decided it would be a more transparent way to include these volumes also into the project volume. And the order intake, as I said, just reflects the -- from our own projects, the full project volumes and in terms -- plus, we have these joint venture constellations, the rental rates for personnel and machinery and equipment.