Friedrich Vorwerk Group SE ($VH2)

[indiscernible] 2025, the company's CEO, Tom Kleinfeldt and CFO, Tim Hameister will guide you through the presentation and the figures shortly, followed by a Q&A session via audio line and chat box. Having said this, Tom, the stage is yours.

Yes. Thank you very much. And also a warm welcome from my side. Welcome to the Friedrich Vorwerk Earnings Call 2025. I will, for everybody who is not in detail, familiar with Friedrich, very quickly through the main topics of our company and then give you a short market update about the latest developments in our main markets. Then I will hand over to Tim for, of course, the financial figures, which are key to this meeting here. And then I will give you business update about our current project we are running at the moment, at least the large ones. So yes, Friedrich Vorwerk has been active since founding in 1962. So with more than 60 years of experience in the business of engineering and constructing energy infrastructure here in Germany, mainly. We can look back at numerous very successful projects in our highly attractive main market, which is natural gas transition, electricity transition, clean hydrogen transition and, of course, adjacent opportunities where we sum up our activities in district heating, CO2 treatment and transport and treatment of biomethane. Today, we are operating from 14 locations within the North, mainly in the North Germany with more than 2,200 well-trained employees. And yes, due to the energy transition, which is still going on here in Germany, we can look back at a very strong order intake already also in 2025. So we were able to acquire projects in a total volume of almost EUR 1 billion in 2025, which is an increase of 27% compared to the figures of the year 2024. Yes. Where do these order intake come from? Main customers here in our 3 markets are, of course, the large TSOs operating the energy transport grids, not only in Germany but also in the middle of Europe. So it could be in terms of electricity transition companies called Tenet and Amprion, looking at the market in clean hydrogen transition and natural gas transition, we have customers like Opened Europe, Gas Uni and others. But of course, you can also find petrochemical companies and cable manufacturers within our customers. Yes. So what's the latest market update. First, I will focus on the development of -- since German government has agreed with the EU Commission to set up new power plants in Germany. These very flexible power plants are necessary to support the production of renewable energy, mainly driven by wind and solar farms, and at times, you don't have wind and solar available. You need to have an energy source, which can be ramped up very quickly. So Germany is planning to install roughly 10 gigawatts of capacity in terms of gas-driven power plants. And that, of course, is an opportunity also for Friedrich Vorwerk Group, both in pipeline construction to run new natural gas pipelines and later on, also hydrogen pipelines towards these gas-fired power stations. But also we have a division in our plant construction department, which can supply the necessary fuel gas systems to supply those turbines delivered by companies like Siemens, GE or others. Other latest developments since we have all heard that the hydrogen economy has been struggling a bit over the last month, German Parliament has passed a so-called Hydrogen Acceleration Act. Main part of that is, of course, to install the so-called core grid for hydrogen transport in Germany, which could be the nucleus to develop the hydrogen industry in Germany because it will cut off costs for transport of hydrogen when the core grid is available and consumers and also producers of hydrogen can be easily connected to this grid, but also they want to secure and make investments in hydrogen production here locally in Germany easier and be more reliable for the investors. And of course, all our other businesses like natural gas transition, it's also still ongoing since new LNG terminals are still developed on the coast of Germany. So the Bundesnetzagentur has just published the first draft of the new grid development plan, combining the investments in natural gas grid development and hydrogen grid development, and this plan looks out to the year 2035 with still investments in natural gas grid of roughly EUR 3 billion. And they also found out that probably developing the core grid for hydrogen will be more costly than predicted 2 years ago. So the revised plan for setting up the hydrogen core grid roughly sketches out investments of EUR 25 billion instead of EUR 20 billion, which was estimated before. So also here in the market of natural gas and hydrogen due to potential for our company's group. And therefore, I would like to hand over to Tim for last year's financial figures.

Thanks a lot, Tom. And also a warm welcome, everyone, from my side to today's earnings call. Overall, 2025 was a fantastic year for Friedrich Vorwerk. We achieved record-breaking results across all KPIs successfully completed 2 acquisitions, secured numerous new major projects. And last but not least, we launched our proprietary welding robot in collaboration with our subsidiary, CTech. Therefore, I'm very pleased to now present these strong results in detail. In terms of revenue, we've steadily increased over the course of the financial year and delivered a fantastic final quarter which despite the seasonal nature of the business, nearly matched the strong performance of Q3. Overall, we benefited from favorable weather conditions in fiscal year 2025. not only in Q4, but especially in the first quarter, when we were able to resume work after a short winter break or many projects as early as mid-January. This part, I would also like to briefly note that the first quarter does not always benefit from weather conditions. This year, for example, in 2026, we've seen a harsher winter again after a long time with plenty of ice and snow, particularly in Norway, Germany, resulting in a question of production stoppages even in February. However, depending on weather conditions in the next quarters that are more relevant in terms of revenue and earnings, we expect to be able to offset at least part of this effect over the course of the year. For the full year 2025, we generated revenue of EUR 704 million representing a remarkable 41% increase over the previous year. This was primarily due to our continued success in recruiting new employees, which led to a 15% increase in the average number of employees as well as an increase in productive hours per employee, higher equipment utilization and, of course, some pricing effects. The electricity segment share of revenue has continued to rise, now standing at 52%, making it the primary driver of growth in 2025. While this is largely attributable to a North, we are simultaneously working on several medium-sized projects such as Bowen, the brom HTT project and several converted stations as well. 2/3 of the current order backlog is attributable to this segment. So continued growth as expected here. At the same time, we anticipate a significant growth momentum from the clean Halogen segment, as larger subprojects on hydrogen core grid are also expected to be put out to tender in the foreseeable future. Furthermore, we expect additional growth in the adjacent opportunity segments in 2027 and the following years due to the German government special fund. The development of profitability was particularly impressive in the fourth quarter with an EBITDA margin of almost 29% and EBIT margin of almost 25%. Even taking into account the dilutive effect of the cost-plus fee contract in our major North project. In addition to the favorable weather conditions already mentioned in Q4, our success in claim negotiations which typically take place in the fourth quarter was a key factor in the exceptionally high margin along with higher earnings from joint ventures, which increased by nearly EUR 10 million compared to the same quarter of previous year. Accordingly, we also concluded a 2025 financial year as a whole. Thanks to our high-quality order backlog and flawless project execution were successful. We increased the EBITDA margin by 7 percentage points from 16.2% to 23.2% and more than doubled EBIT from EUR 59 million to EUR 137 million. Despite the tremendous 40% growth, we still managed to further reduce trade working capital, which along with the higher profitability, played a significant role in improving the net cash position. As a result, we were able to increase net cash by more than EUR 100 million compared to previous year, bringing it to EUR 262 million at year end. However, that -- the trade working capital is always at its lowest level at the end of the year and rises as the construction season progresses. And these swings between summer and winter can amount up to EUR 80 million or EUR 90 million. With regards to capital allocation, our top priority remains investing in organic growth, specifically in the purchase of new pipe layers, drilling rigs, cranes and excavators and of course, our welding robots. We've budgeted approximately EUR 50 million for this in 2026. Furthermore, we will certainly be open to pursuing a larger M&A deal, again, provided we find the right target and of course, at a reasonable price. And finally, we would like to share the company's success with shareholders in the form of a significantly higher dividend payout, consisting of EUR 0.70 base dividend and a EUR 0.40 special dividend. Let's now take a look at the development order intake. In addition to the conventional order intake figure, we've already introduced a new KPI last year, the total project volume acquired. This new KPI also includes a proportion of project volume from the joint ventures in which Forberg is involved. And therefore, in our opinion, provides a more transparent view of the actual order situation, regardless of the structure of the contract. The total product volume acquired rose by 29% to EUR 991 million in 2025, while conventional order intake at EUR 538 million is around 20% below previous year. The main reasons for this are, on the one hand, a shift in the order structure brought more joint ventures, especially in H1 2025. And on the other hand, or already wolfed order book combined with a limited capacity of our resources. The order backlog, which corresponds to the conventional order intake figure declined, therefore, slightly to EUR 1 billion for the reasons I stated before. We've learned from several investors at the communication regarding order intake and the contract structure is not yet clear enough. Therefore, we are currently working on reporting an order backlog KPI that includes our share of joint venture projects as well starting in the Q1 report. And I expect that this additional metric will provide a transparent picture for all shareholders by the end of the latest. Yes. And then based on our consistently high-quality order backlog, we expect our growth actually to continue in 2026 with revenues in the range EUR 730 million to EUR 780 million. Should be noted that following 2 years of very high employee growth, we intend to slow down the expansion of our workforce somewhat in 2026 to give the organization and the administrative functions, the opportunity to grow at the same pace while spontaneously focusing our recruiting efforts on attracting senior construction and project managers. At the same time, revenue growth is somewhat slower in 2026 due to the higher proportion of joint ventures. And this change in the project mix also means that we are now forecasting absolute EBITDA instead of EBITA margin. specifically in the range of EUR 160 million to EUR 180 million for 2026 as this number is unaffected by the order structure. This guidance also takes into account, they're slightly softer Q1 2026 due to the adverse weather conditions. With that, I'd like to hand back Tom for the business update.

Yes, Tim, thank you very much. And of course, we did pick for this meeting or most outstanding projects at the moment. Please remember that during the year, we are operating on more than 500 smaller, midsize and also large projects. So we can, in this meeting, only give you a glance of the most outstanding projects. And I would like to start with the natural gas business here, project. We've already been working on last year. It's the so-called EWA pipeline, which is a 48-inch pipeline running from the covenant of Etetowards compensation of [indiscernible]. This pipeline will continue in size of 40-inch towards the station of [indiscernible], which is more to the Ganguarea. So in the south of the area. We have already finished the construction on EWA last year with a pressure test and the handover to the customer. So there's already gas on this pipeline. And the WAD pipeline is construction in progress at the moment. We have already started in January with the first wells on site using our new welding robot PX2 developed by our subsidiary, CTECH. We have completed roughly 400 wells on the project this year. And again, with a very, very low mistakes in the wells. So it's -- the repair rate is definitely under 2%, which is very good in terms of fully automatic well. Yes, I'm changing actually over to the next natural gas pipeline project, which is, at the moment, our still largest project executed in a joint venture between the Harbor Group and the Friedrich Vorwerk Group, compromises of 2 pipelines first, the ETL1A2 with a diameter of 56-inch and the ETL179.200, which is a 36-inch pipeline. Altogether, a mid-3-digit million euro project. And both pipelines are being executed by the same joint venture combination. As you can see in the picture below, we have already started some civil works to erect the pipe yards that has been done already in 2025, and we have already received most of the project pipes, which are purchased by our customer gas unit, and we've actually started in the latest weeks to make preparations for the first loading procedures so for the tunnel crossings. And for the horizontal directional drilling operations are already in place and will be executed in due course of this year. And then maybe next slide. We are not only active in pipeline cable laying, but our plant division Construction is also very busy with the new project at gas metering station called [indiscernible]. This is the main metering and supply station for the company on us. Here we have a project to renew the full installation at cost curves with a volume of mid-2 million digit range. And we have to deliver the full scope of engineering and also construction activities and will then commission the new plant in -- as is foreseen at the moment in 2028. And the system will already be constructed in the hydrogen ready way. So later on, once the usage of natural gas in the system is over, it can be easily converted to use either for clean hydrogen and meter and also regulate the hydrogen being transferred in the grid. Next project is also a hydrogen project, which we have already been working for 1.5 years. This is the so-called [indiscernible] project. So the city of Hamburg is trying to set up a hydrogen grid in the Port of Hamburg. Key figures here is an electrolyzer plant, which is located at the former Power -- electrical power station of Moore book were about 100 megawatts entity of hydrogen is being produced and then fed into the Harbor grid. So the Aha Wind and Friedrich Vorwerk has already executed 3 lots of this newly established hydrogen grid. And we've been recently awarded with 2 new lots to set up this hydrogen grid, the first lot involves actually micro tunnel of almost 200 meters, where we later on involve the piping DN300 for the transfer of hydrogen and the following lot compromises of roughly 1,500 meters of new build hydrogen pipeline. But besides those existing projects where we've already started execution, we are, of course, still busy in our estimation department, working on new estimates for new projects. Just to give you a small idea what could be coming up over the next years. In terms of pure natural gas position, we are at the moment, working on estimation for the so-called Pasadena item, which is also DN1000 pipeline about 115 kilometers long for Teranet and also other projects coming up from Open Grid Europe, setting up the core grid for hydrogen here in Germany. And also for gas unit, new projects like ETL1H7, which is directly in conjunction with the current project, ETL1H2 is this at the moment in tendering phase and execution and commissioning would then be in '27, '28. But also still very attractive is the electrical market, where we are now facing the so-called second wave of large-scale electricity highways, projects like North Ostling Section 2, Seed ostling and asking are being tendered out over probably end of the year and beginning of next year. And these projects will be commissioned in the mid-2034s and in the mid-2030s. So also here, huge potential also after 2030 for our company's group. And adjacent opportunities, we were able to already wonder the rind water transport pipeline. This is a very large diameter pipeline 2.2 meters in diameter that will later on transfer water from the river line to flood the coal mines of RWE. And at the moment, we are working on the next slot to establish this water transfer pipeline. And also a very new business to our company, the transport of CO2 is ongoing. So the first tender we have received is the CO2 link from Ligado where Holden is operating a cement factory towards the port of Brunsbutte on the table at the moment. commissioning is foreseen for 2029 and tendering phase ongoing and probably construction phase will be '28 to '29. So this, of course, can only be done if we can establish to grow our head count in our number of employees where we were very successful last year. So today, we can look at the workforce of more than 2,200 employees. Of course, the labor market within Germany, especially due to the low capacity in building construction, we were able to employ a lot of new blue colored workers, we could integrate in our projects. And probably during this year, we will definitely have a focus on growing our engineering staff and our overhead staff on the construction site. So challenge will be also to look for well-educated project managers and construction managers to manage all the blue-collar employees who were able to attract over the last month. Yes. That's it from our side. We are happy to receive your questions either by phone or by chatbot. And happy to answer them.

[Operator Instructions] And the first hand is up from Lasse Stueben.

I wanted to ask just on the Q1. Is there any more color you can give roughly in terms of what we should expect in a year-on-year comparison just to avoid any sort of nasty surprises. The second question would be what should we expect for head count growth broadly in '26? And then the third question is, you mentioned sort of slowing down head count growth, but then you also said that you would be willing to do a larger M&A or potentially do a larger M&A transaction. So how do we kind of scan those to kind of comments because I guess a larger M&A deal would also involve many new employees. So just any color there would be great.

Well, we've seen compared to the year before some weeks of weather-related production stoppages in February. Combined with the growth of the head count could be possible to see a rough flat Q1 in 2026 in terms of revenue growth. And as I said, which could potentially partly be offset by stronger quarters in Q2 and Q3 as the overall share of Q1 on the full year revenue is that relevant. Regarding the head count growth, when we talk about slowing down recruiting efforts, this is only in terms of organic growth, meaning directly hiring people, not including any M&A. On the organic growth side, we expect to grow headcount by 5% to 8% in 2026 and any M&A would be add-on, on that. And of course, usually, we have also acquired project managers and the respective engineering and administrative functions when doing a larger M&A deal.

And additionally and slightly regarding question in the chat, Friedrich Vorwerk is guiding for a slightly lower margin in 2026 compared to strong 2025 midpoint of 2026 guidance at 22.5% versus 23.1% in 2025 despite continued revenue growth. Could you provide a margin bridge for 2026 versus 2025 and outline the key driving factors?

Well, we've always communicated that we see the margin potential in the mid- to long term at our company between 20% and 22%. However, in particularly strong years as in 2025, it's also possible to achieve even better margin more than 23% due to basically flawless project execution, good weather conditions and so on. But on the long run, we feel pretty confident with 21%, 22%.

And the follow-up from the person, could you please provide more details on the Nord A project, specifically regarding the recent delays and their potential impact on bonus Malos payments. Additionally, is there any bonus or Malos effect already factored into the 2026 guidance?

As we already communicated last year, a North project is expected to be slightly delayed with completion now anticipated in summer 2027 instead of end of 2026 due to missing permits. We are still in discussions regarding adjustments to the bonus related milestones. And these discussions have been ongoing for some time. We do not yet have a definite outcome of these discussions, but we remain still confident and hope to sign their respective contract amendment in the course of the second quarter 2026. And based on this information, at least a portion of the contract liability we've already included into the books since accrued over the project duration. Part of that could be reversed once this amendment is signed in the second quarter. However, we did not factor in any positive impacts from that amendments as it is not signed yet.

Thank you very much. And for now, we have no further questions, ladies and gentlemen, at the room for another moment. in case someone might be typing right now. And there is a hand up from Lasse Stueben again.

Right. Just a follow-up on some of -- you mentioned kind of the JV share of projects is obviously going up. Should we expect that kind of level of the [indiscernible] income you saw in '25 to be roughly the same in 2026? Or how should we think about that?

All the new JVs we entered into last year, we expect that the net earnings of the JVs will even increase compared to 2025.

Thank you very much. And another hand up from Leon Muhlenbruch.

I have a quick question regarding to the current geopolitic situation, with the energy crisis already underway and inflation likely to is similar to 2022, which had a significant impact on drive. How are you prepared for such a scenario?

Well, first of all, we were able to have better negotiation position in most of the contracts that are in the order backlog at the moment. So most of the contracts have included price escalation clauses. So we can -- on the most bigger project we can forward the price escalations to our customers. although, of course, not to 100% because they are mainly bound to indexes some more general, for example, the steel index or the crude oil index, which is not always 100% equivalent to the products we are actually using in our products. But in the end, we are at least in a very better position this year than in 2022. Also in 2022, most impact was from a plant contractor project where we had to bring a lot of material to the project. If we look at the current large-scale projects we are operating on, it's mainly the pipeline projects where the pipe is supplied by our customers. So we are mainly supplying equipment and personnel for services, which are, at the moment, not that much affected as back in 2022.

Another hand up from [indiscernible].

I've got a few questions on margins. One is, are there any kind of older projects, which have lower margins in the -- which are running out and should be supportive to the group margin outlook once they do? And what about the margins implied in the order intake? Can we assume that there should be at a premium to the margins you've seen in 2025? Or should it more be in the region of the long-term potential of 20% to 22% you've been hinting at?

Well, there are currently no such legacy projects in the current order backlog, although we still have the dilutive effect from our major project A North, which will run until summer 2027, where the base margin is definitely lower than the group average. Apart from that, there are no legacy projects with low margins. And well, I mean, we have already seen such strong margins in 2025. We do not expect that we can further increase this margin profile, and therefore, rather to suggest that you can assume the long-term potential at around 21%, 22% for the next years.

In your order intake you had in 2025. We should already assume this? Or is this still at the margins you've seen in '25?

Well, the margin profile calculated in those projects is roughly on the same level as we've seen the year before. However, on the one hand side is the calculated margin, on the other hand side, it's the actual project execution on the field. And this has also a major impact on the earnings in the year.

And we're moving on to 2 questions in our chat. Are you planning any buybacks? What are the key impacts for the Iran war for you? And what are you doing to hatch against it? For example, natural gas inflation diesel?

At the moment, there are no plans for any share buybacks. We have decided to instead increase the dividend and to also pay out this special dividend of EUR 0.40 per share. Adding on the answer from Tom regarding Iran, the major impact for us at the moment is, of course, the higher cost for fuel, especially diesel. To give you some color on that, the total cost of diesel last year was around EUR 12 million. So it's not the largest position in our P&L statement. And we've, of course, already hedged some of the amounts needed already before the war in Iran. So there will be, of course, some effect but not a significant one.

But on the other hand, the crisis also has a positive impact on the market because at the moment, customers are really pushing the projects and trying to get more LNG receiving capacity in Germany, which then, of course, also means constructing new pipelines and constructing new plants, which is then also good on the market side for us.

Thank you. Can you discuss your appetite to revisit media to long-term guidance and what milestones would trigger an upgrade?

Well, that's definitely thing to consider this year as we are pretty well on track on the older mid- to long-term outlook. So maybe we can expect to see a new outlook in the second half of this year.

So ladies and gentlemen, we still have a minute for your questions left. And if there should be no further one, you can always get in contact with Investor Relations. And this is it, with no further questions, we come to the end of today's earnings call. Thank you very much for your interest in Friedrich Vorwerk Group SE. A big thank you also to you, Tom and Tim for your presentation and your time. I wish you a successful day around the world and giving the last words to Tom, again.

Yes. Thank you very much for listening. I think especially this year, we can look at some very, very interesting projects we can execute for our customers. And please stay with us and hear the latest news from our projects in the future. Have a good time around the world. Bye-bye.

Bye.