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

Welcome to the earnings call of Friedrich Vorwerk Group SE regarding the first half year figures of 2026. The company's CEO, Torben Kleinfeldt; and CFO, Tim Hameister, will guide you through the figures in a moment, followed by a Q&A session in which you have the possibility to place your questions directly to the management. And with that, I hand over to you, Torben.

Yes. Thank you very much for the introduction. Myself, Torben Kleinfeldt, studied civil engineer. On board of Friedrich Vorwerk since 2001. Today, responsible together with my colleague, Tim Hameister, who will introduce himself later for the all responsibility of the company and I also do care still myself about some of our major projects in both pipeline construction and also plant construction. To all of you who have been in this call for the first time, I will start with a very small and very short introduction to our group of companies. So Friedrich Vorwerk was founded in 1962. From its first day on, it has always been active in the energy infrastructure. So in the end, laying cables, pipeline systems, district heating pipelines and today, also large cable systems and hydrogen pipeline systems. Our branch offices are very well distributed in the north of Germany, as you can see on the map on the left-hand side with 50 locations and more than 2,400 employees. We are one of the largest players for energy infrastructure here in middle of Europe. And due to the energy transition that is going on at the moment, especially in Germany, we had a strong annual growth over the last years of more than 30% per year. Today, we are active in very highly attractive markets such as infrastructure for natural gas, electricity, over the latest years, also clean hydrogen and what we today call adjacent opportunities, which basically wraps up our activities in district heating, the treatment of biomethane and also the extraction of the CO2, transport of CO2 and storage of CO2. Among our long-decade customer relationships are, of course, the large TSOs and the bigger district system operators here in Germany, both on the natural gas side and also on the electricity side. So to name some of the larger names, it's an Amprion, TenneT on the natural gas and hydrogen side, Open Grid Europe, Gasunie. But as you can also see, among our major customers are also petrochemical companies and also the large producers of energy and electricity, such as E.ON or Thyssengas, for example. Yes, we have, as I said, major driver of our activities is the energy transition going on. And due to this, our total project volume acquired has been increased from 2024 to 2025 by almost 30%. So what does Friedrich Vorwerk Group stand for and what are our what daily works are we involved? And I think this sketch is from an early days of our IPO, but it still shows very well which activities we are involved in. So for example, on the very top of this slide, you see our activities in natural gas. So our company group is able to engineer, construct and also operate all belonging all necessary facilities that belong to a natural gas -- high-pressure natural gas. So it could start, for example, by setting and engineering an LNG terminal or a cross-border takeover station. Then of course, we are -- we have the main objective to construct and build the high-pressure gas pipelines, which transport the natural gas being taken over from an LNG terminal or a cross-border station and bringing it to either consumers or, for example, to underground storage facilities, which are well located here in the north of Germany. To make the system of pipelines work, each 200 to 300 kilometers compressor stations are being required. So these are very sophisticated large pumping stations that will boost the flow of gas in the pipelines to finally bring it to the consumers and at the very end of the value stream, we can also engineer and set up gas pressure regulating and metering stations, which is, so to say, the interface towards the consumers where the gas is reduced in pressure. It will -- is responsible for delivering the right volume and also at this -- in these locations, the gas flow and the energy being transferred to the consumers is metered, so it can be later invoiced for all customers. Basically, the same is true for future hydrogen grids, which are shown here on the bottom of this slide. So it requires also pipeline, compressor stations, storage facilities and also metering stations. But at the very beginning, of course, since hydrogen cannot be found in nature, it requires electrolyzers. So hydrogen can be produced out of electrical energy and water. Friedrich Vorwerk has already been active in the hydrogen electrolysis since 2011 when we set up the first power to gas plant here in Germany for the E.ON Group. In between our activities in high-voltage underground cable systems, which the main activity starts with the landfall of seagoing cables, picking up the electricity from the offshore wind farms, which are installed in the North and Baltic Sea. These activities are mainly done by our sophisticated horizontal directional drilling services, which take over the underground cables and under the sensitive areas of the shores of North and Baltic Sea and bring it to onshore. From here, we can run the underground cable systems to the next transformer or inverter station. And of course, we are also able to set up these sophisticated stations, but also able to set up power to heat station where the electricity can directly be transformed in heat, mainly to heat the households in the big cities and also the industry. So after this general introduction, a short market update, what is going on in our markets. There are some new activities. And as I said in the beginning, in our adjacent opportunities, we are already today active in extraction of CO2 out of, for example, biomethane streams. And we have already a couple of weeks ago, placed an offer for the first commercial CO2 pipeline in Germany, which will -- if the project is realized, we will connect the cement factory in Lägerdorf, run by Holcim to the Port of Brunsbüttel, where the CO2 is loaded on the ship and then being shipped to Norway, where the extracted CO2 will then be dumped into old natural gas wells under the North Sea. And just recently, an agreement between the Netherlands and Germany has been finalized that they are planning to export through the Delta Rhine Corridor, CO2 from major power stations and other industries towards the border of the North Sea in the Netherlands. And there, it will be picked up and then being transferred via pipeline to old natural gas wells in the North Sea and can be stored there for a very long period of time. So this is really an activity which can be a very nice opportunity for our group of companies with up to the 2045 year when this project is really being kicked off and is realized. Besides that, I know that a lot of discussions has been going on about our underground cable activities. So the German government has decided in 2016 that all major high-voltage cable systems need to be installed underground and not as before in aboveground power lines. Due to that new law, all recent planning have been done and also the investment volume, which is shown in today's national electricity grid development plan with a volume of EUR 320 billion up to 2045 is still based on that law. So all the current projects, which are being executed in high-voltage transport of energy here in Germany will be underground pipelines. But at the moment, due to the cost of the underground cable systems, discussions are going on in the German government to switch again to overhead lines. which could be feasible for some of the future projects that will be executed after 2035. But in the end, there are for many projects which are in the grid development plan at the moment, there are good technical reasons, but they are being built underground as a cable system. So the discussion in the government is still going on. And as you can see from the slide, some of the federal countries in Germany, for example, Lower Saxony and Schleswig-Holstein, they have already strongly opposed to the discussion. So we did expect to find a resolution with the German government by this summer. Since now we have not received any update, so we'll see what comes out of this. In the very end. But as we say, in the very end, we are very sure that there are good technical reasons for underground pipelines. And in the end, the decision is being made by the TSOs for which technology they will decide. But besides that, of course, within our company group, a lot of tendering is still going on in all fields of activities. And this slide shows our project pipeline, which we are working on at the moment in our estimation department. So there are a lot of very huge projects in all markets which we are working on at the moment. Largest one in natural gas industries at the moment, the Spessart-Odenwald-Leitung, which is about 120-kilometer 40-inch pipeline in the southwest of Germany being executed in the years '27 up to '29. Other projects which will be used for natural gas over the next years and then later be converted to hydrogen, for example, the Gasunie project ETL 186, which will end in Peine, where the Salzgitter AG steel factory will receive in the later 30s hydrogen for their steel production. But also pure hydrogen pipelines are being worked on at the moment. So for example, the Delta Rhine Corridor, which will carry both hydrogen and also CO2. The H2ercules project, where we have already received 2 small contracts for Open Grid Europe to set up a 56- and 40-inch pipeline. And also here another Gasunie project, the ETL 187, where we have handed in our first offer beginning of July this year. In electricity, major projects reaching out up to the year 2034 is Windader West, SuedWestLink, SuedOstLink+, and NordOstLink Section 2, which is run by 50Hertz. And also in the region of adjacent opportunities, there will be large projects coming up, for example, the Lägerdorf-Brunsbüttel link, which I've talked about before and also a large water transport line, which will carry water from the river of Rhine when it carries enough water and then fill the coal mines being left over in the Western Germany. So these are projects we are working on or the major projects we are working on at the moment in estimation environment. But please keep in mind that these projects are only the few major projects we are working on at the moment. Our company group executes more than 500 projects a year. So among those are, of course, also a lot of smaller projects being executed for the DSOs and other customers. And with that, I would like to hand over to Tim for the financial section.

Yes. Good afternoon, ladies and gentlemen. Welcome to Friedrich Vorwerk's earnings call on the H1 figures. My name is Tim Hameister. I'm the CFO of Friedrich Vorwerk. And I'm very pleased to walk you through our, again, exceptionally strong half year results and the updated outlook. So following a modest start to 2026 in terms of revenue due to unfavorable weather conditions, we returned to our targeted growth trajectory in the second quarter. As a result, monthly revenues increased each month from April to June, with June achieving the highest monthly revenue to date at EUR 73 million. In total, we generated revenue of EUR 198 million in the second quarter, representing growth of 17% compared with the previous year. As in the previous years, a key driver of this continued growth is the increase in our workforce. Although we had originally intended to take a slightly more measured approach to recruitment this year, we were nevertheless able to recruit more than 160 new employees in the first 6 months on a net basis, representing a 15% increase in the average number of employees compared with H1 2025. In terms of revenue breakdown, the electricity segment was once again the strongest, accounting for 53% of total revenue, followed by natural gas at 29% and our adjacent opportunities at 16% Clean hydrogen revenue was still quite weak in the first 6 months. However, we continue to expect strong growth in this area, not least due to the large orders already received in Q1, the 2 major plant construction projects, Bobow and [indiscernible]. And in Q2, where we secured the H2CoastLink pipeline project, which we see later in the presentation, but also due to the very attractive project pipeline related to the hydrogen core grid. Furthermore, since the start of the year, we've been also reporting what is known as production output, which in addition to revenue includes the proportionate revenue from our joint ventures, Arbeitsgemeinschaften. As the contract structure had shifted increasingly towards these joint ventures over the last 2 years due to the growing scale of the project, we believe this key figure provides a more transparent view of our business performance. In the first half of the year, the production output improved by 35% to EUR 448 million, representing significantly stronger growth than revenue. Looking at the breakdown by segment, it's clear that a very large number of joint ventures has been formed, especially in the natural gas segment. However, profitability showed particularly strong growth in Q2. EBITDA increased by 68% to EUR 60.8 million, corresponding to a margin of 30.7%, which represents a quarterly record for Vorwerk in both absolute and relative terms. The EBIT margin rose by 9 percentage points to a new record high of 26.7%, corresponding to EUR 52.8 million alone in Q2. And the key driver behind this fantastic performance is that we've managed to substantially reduce the cost of materials ratio whilst turnover has risen significantly. In other words, fewer materials and subcontractors were required to deliver our services. The cost of materials were reduced by EUR 10.7 million compared with the previous year, resulting in an improvement in the cost of materials ratio from 46.4% to 38.6% in the reporting period. Expanding our own value chain remains, therefore, a key part of our growth strategy. Yesterday, we were able to announce the acquisition of a former supplier called meterQ. Torben will provide further details on this acquisition later on. Another reason for the improvement in profitability is the sharp rise in earnings from joint ventures, which more than tripled to EUR 12.8 million in Q2. Accordingly, we generated EBITDA of EUR 92.6 million in the first half of the year with a margin of 27.4% and EBIT of EUR 67.9 million. In addition to the effects on profit described previously, these results also include a positive one-off effect in the amount of EUR 1.7 million from the sale of our former branch office in Lüchow-Dannenberg in Q1 this year. So let's now turn to the order situation. On the left-hand side, we can see the conventional order intake figure, which has improved by just under 50% year-on-year to EUR 321 million. On the right-hand side, we can see the total project volume acquired, which also includes a proportionate share of the order intake of the JVs. And this figure shows actually a decline of 25% to EUR 470 million, which is due to the fact that, especially in Q2 2025, a number of new large projects were secured in the form of joint ventures, such as the SuedLink project and the South German natural gas pipeline. Overall, we are quite happy with the order situation. This is a very satisfactory development with a book-to-bill ratio above 1 in terms of the total project volume acquired versus production output. Despite the high turnover, respectively, the production output, the order book remains at a high level and has even increased slightly compared with the balance sheet date. As of June 2026, around 45% of the order book relates to the electricity segment, followed by 30% for natural gas and already 14% for hydrogen. Then also look at the balance sheet, which remains very healthy, very strong and also relatively unchanged compared to December 2025. Again, we have continued to invest into our noncurrent assets such as drilling equipment and especially the welding equipment for our subsidiary, 5C-Tech, which is growing at a very high speed. For seasonal reasons, working capital increased compared to the end of the year. However, the working capital management, which was and still is a key priority for us has achieved continued positive results. Therefore, our net cash position has been -- has improved by outstanding EUR 128 million compared to Q2 2025, underlining our high cash conversion rate. And due to this fantastic performance, especially in the second quarter, we revised our guidance for the 2026 fiscal year upward last month. We now expect EBITDA in the range of EUR 180 million to EUR 200 million after previously forecasting EUR 160 million to EUR 180 million. We continue to expect revenue in the range of EUR 730 million to EUR 780 million. And this forecast is based solely on the company's organic growth and does not include any additional inorganic growth opportunities. However, given the net cash position of EUR 212 million as of June, the range of opportunities for further growth options remains definitely open. And let me now hand it back to Torben for some updates on the ongoing and upcoming projects before we open the floor to your questions.

Tim, thank you very much. And after these fantastic figures, I think I will present some very nice projects we are working on at the moment. Some of the projects we have already introduced to you in the Q1 earnings call. So largest project at the moment is the -- actually 2 projects. It's the gas pipeline system, ETL 182 and ETL 179, which we have started working on in the fall of 2025, preparing preliminary works as the pipe storage facilities, you can see on the bottom of this slide. We have now started with the construction and laying of the actual pipeline. So welding is in full progress on ETL 179. We already finished all the crucial non-dig procedures. So all the large crossings in terms of horizontal directional drilling, micro tunnels and also direct pipes have been successfully executed in the time frame given by the customer. And for the 179, which has been handed over to Gasunie, by the end of this year to allow further transports of LNG via the floating terminal in Stade. This can definitely be met by the activities we are doing in the field at the moment. For ETL 182, also here for all the major projects, we are in the time line given by the customer and by our project group. So we are at the moment quite happy with the execution of these 2 projects. Also after a very slow beginning due to weather conditions here in the north of Germany, we had a fantastic weather opportunity over the summer months and did a very good performance on both of the projects. Coming to a next pipeline project, which is a pure hydrogen pipeline project. It's a diameter-wise smaller pipeline with 16-inch diameter pressure load will be in -- or design pressure of the pipeline will be 100 bar. The customer for this project is EWE NETZ and GTG Nord, which are one of the 2 smaller TSOs here in the north of Germany. We are constructing a pipeline to connect the newly built electrolyzer with a total capacity of 320 megawatts, which will be set up in the area of Emden, so the North Sea port of Emden and will pick up the produced hydrogen at the electrolyzer facility and then transfer it to a section of pipeline, which will later on feed some industry in the region of Leer and also the storage facilities in Jemgum and Nüttermoor, which are already been -- which are also being run by a subsidiary of the EWE AG. So this project at the moment is still in engineering and preparation phase. Work on this project will start probably in Q3 this year. Next project, again, a natural gas project, which is a project that was won by our subsidiary, 5C-Tech, so our newly set up welding technology company. We have received a contract to execute 28,000 welds with a diameter of roughly 1,100 millimeters to set up a gas -- natural gas pipeline transferring Kazakian gas towards the border of China. At the moment, we have done all preparational works. We have executed the welding procedures. And now at the moment, all our specialized equipment is being shipped to Kazakhstan. And once it will arrive there, our expert team will set up the system with our customer and then start executing the welding activities also in Q3 '26 with an estimated duration of roughly 8 months. Since 5C-Tech has already executed very successfully similar projects last year in Iraq, we are very happy to have won this 2 million digit project for our new subsidiary. Also a new company in the group is the meterQ company. This company is located in Friedberg, close to Frankfurt am Main. Company has been active in the field of gas analysis. So they can do both gas quality analysis, both in natural gas, and they are the only supplier of this equipment, which has been certified at the moment for hydrogen. The plants which are being produced here, you can see on the bottom right hand of this slide. And we are very happy that we could take over all the assets of meterQ, and we have integrated those assets in our subsidiary VORWERK Gas Technology GmbH, where we have already located our activities for flow metering with our system OrQa, which we've introduced already a couple of years ago. And to putting the OrQa and also the gas chromatography together, we are also able not only to meter flows and quantities, but now we can also meter the quality of the gas being transferred and therefore, can also do the calculation which energy is being transferred to the customer with own equipment, and we can offer a full solution in this area of our activities. We have already integrated those pieces of equipment in our activities in Bobow and [indiscernible], so both major gas metering and gas and reduction stations, which we are working on at the moment for our customer ONTRAS. With that, also 15 very high qualified new employees came on board. And as Tim already elaborated before, number of employees has already grown quite by a significant number by the first half year of 2026. So headcount on the 30th of June 2026 is more than 2,400 employees, which is a rough growth of 7% of the employees from beginning of the year. So I think we carry on like this, we'll probably this year also be managing to grow by 10% headcount. And although we figured we would take it a bit slower this year with the growth of headcount due to the large project volume we are operating on at the moment, I think it is necessary to get some new and also very well-trained people here on board. So coming to that, I think it's the end of our presentation, and we are very glad to listen and we'll be ready for all of your questions.

Thank you very much for your presentation. [Operator Instructions] Lasse Stueben, the stage is yours.

I wanted to ask just generally on sort of the outlook for order intake in the second half. I know you gave some projects in the presentation, but just given how quickly you're growing, I'm guessing that winning more orders now is going to be of the focus for the second half and also going to '27. So just curious about how you're thinking about that also in light of the I'm guessing we'll have some project delays on the electricity side of things until we get clarity on the legal framework. The second question is on A-Nord. We're nearing, I guess, completion here in '27. So just wondering how you're thinking about the kind of provision for the bonus-malus scheme that you've built up? And then finally, maybe you can talk a little bit about how the business has developed so far in Q3. I'm guessing the weather has been pretty good, maybe even too hot in some parts, but it would be good to just get an update on Q3.

Well first of all, at the moment, we do not really see a delay of tendering activities in the electricity market. As I tried to explain before, the major projects set up for the high-voltage electricity grid is still unchanged on the way. So all major projects which are planned to be executed up to the year 2035 will remain with the underground cable system. Most of -- for most projects, the cables have already been acquired and also most of the permitting is also on the way. So it is very hard for the customers to change these projects since they already did large investments, as I said, in the cable procurement. So we do not expect any delays here, except from usual delays, which we see in all project tenderings, which could happen, but that only slows down the projects 1 or 2 months. In the end, we do expect that all the projects we did show on the pipeline slide will show up in our estimation department over the next month. I think especially for the large pipeline systems, we feel very confident that we are able to get some further pipeline projects on board, although please keep in mind that we are still very, very well booked for the next year. So '27 will be still with the work that we have at the moment, a very busy year for us. But there are, of course, still a couple of interesting projects coming up, which we would like to tackle for the execution late '27 and '28. And Tim, maybe you want to catch up with the A-Nord?

Sure. In late Q2, we were able to agree with the client on an adjustment to the bonus-malus related targets related to the delays we have seen in the project. Yes, this agreement was finalized in Q2, but has not yet been factored into the project assessment. which means that there is no adjustment effect in the Q2 figures. And I think this will be done by Q4 at the latest. The remaining contract volume as of June 2026 is roughly EUR 100 million for this project, which will be worked through until summer 2027. And regarding start into the Q3, we were pretty happy with the July. As you said, we had pretty good weather conditions on all on our project sites and branch offices. So yes, it was a good start.

Lasse, did that answer your question?

Yes. Thank you very much.

And we have a look in the chat with the questions. Could you elaborate on your perspectives around data center build-ups and connections?