Bilfinger 2020 - Back to Profitable Growth - Bilfinger SE | Capital Markets Day
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Bilfinger SE | Capital Markets Day Bilfinger 2020 – Back to Profitable Growth Tom Blades (CEO), Dr. Klaus Patzak (CFO), Michael Bernhardt (CHRO) February 14, 2017
Preliminary figures FY 2016
FY 2016: Highlights Sound performance in challenging environment Orders received: decline in FY; Q4 above prior-year period with book-to-bill at 1 Adjusted EBITA: swing to positive €15 million after loss in prior year (€-23 million); margin improvement despite substantial decline in output volume; restructuring taking hold Net profit: capital gain from sale of Building and Facility results in a significant increase to €271 million Cash flow from operating activities: Operating Cash flow significant below extraordinary high prior year; net liquidity rises significantly due to proceeds from the sale Balance sheet: stronger with substantially higher equity ratio Dividend proposal1): €1 per share Outlook 2017: further improvement of earnings at lower output volume 1) subject to a corresponding resolution by the competent boards Bilfinger SE | Capital Markets Day | February 14, 2017 page 3
Q4 2016: Current market situation in customer groups Chemical & Petrochemical • Stable demand for maintenance services in European markets • In the US slight revival of investing activities in Chemicals; signs of recovery in project business Pharma & Biopharma • Good demand for projects in biotech pharma, however generally limited willingness of customers to invest Oil & Gas • Maintenance budgets in UK and Scandinavia at a low level, however trough seems to be reached • Project business in the US shows first signs for possible recovery in mid-term future Energy & Utilities • Demand in project business remains low • Volume of services requested declining especially in Germany due to insufficient capacity utilization and profitability of power plants • Stable demand in services business in Middle East and South Africa Bilfinger SE | Capital Markets Day | February 14, 2017 page 4
Q4 2016: Segment development in line with expectations Industrial Orders received slightly above prior-year quarter, book-to-bill exceeds 1 Significantly lower output volume; EBITA margin (4.4 percent) above prior-year figure (3.6 percent) Restructuring taking hold, cost base decreasing Power Orders received in Q4 at prior-year level, however FY well below prior year, as expected. In view of the competition and price pressure, highly-selective approach in the German and international project business Output volume continues to decline significantly as planned; also low capacity utilization in some units impacted EBITA Bilfinger SE | Capital Markets Day | February 14, 2017 page 5
Expectations for FY 2016 on Group targets fully met Output volume EBITA adjusted in € million 2016 expected 2016 2016 expected 2016 Industrial about 3,100 3,197 at prior-year level 120 significant improvement Power about 1,000 967 -30 over prior-year level Consolidation / Others 55 at prior-year level -75 significant improvement Group about 4,100 4,219 15 over prior-year level Bilfinger SE | Capital Markets Day | February 14, 2017 page 6
Orders received in Q4 above prior-year level despite lower share of „large“ orders Development Orders Received -6%/ -1% • Orders Received Q4: +6%/ +13% 4,301 4,056 6% above Q4/15 (13% organic) 1,011 1,013 1,026 1,069 Orders 947 • Book-to-bill in Q4 at 1 received 691 810 742 816 (m€) 810 (68%) (80%) (72%) (76%) (86%) • Order Backlog Q4: 320 203 284 137 253 below prior year quarter due to Power Q4/15 Q1/16 Q2/16 Q3/16 Q4/16 FY/15 FY/16 Act Act Act Act Act Act Act • Lower share of large orders in Q4 Order backlog 2,902 2,849 2,677 2,603 2,618 2,902 2,618 (m€) Bilfinger SE | Capital Markets Day | February 14, 2017 page 7
As expected, double-digit decline in output volume in Q4 also due to tough comparable Development Output Volume and Profitability -16%/ -12% -19%/ -15% • Output volume Q4: -19% (org. -15 %), 1,313 5,003 1,097 1,058 4,219 as expected both segments with a 1,044 1,020 1.7% decrease 0.2% 0.7% 2.1% 0.4% • EBITA adjusted in Q4 below prior year -1.4% 0 -0.5% and strong Q3, but positive in the full year Q4/15 Q1/16 Q2/16 Q3/16 Q4/16 FY/15 FY/16 Act Act Act Act Act Act Act • EBITA in Q4: Special items in the amount of € 56 Mio EBITA adj. 22 -15 2 21 7 -23 15 (m€) EBITA (m€) -32 -54 -64 -53 -49 -157 -221 Bilfinger SE | Capital Markets Day | February 14, 2017 page 8
Industrial: Orders received slightly above prior-year quarter, book-to-bill exceeds 1 -14%/-9% • Orders received: With € 885m +4% 3.6% 5.1% 4.4% 3.7% (org. +10%) against prior-year quarter 942 788 834 761 814 • Book-to-bill >=1 in the fourth consecutive quarter 1.8% • Significantly lower output volume Q4/15 Q1/16 Q2/16 Q3/16 Q4/16 • Adjusted EBITA margin (4.4 percent) EBITA adj. Margin (%) Output volume (m€) Y-o-Y x/x Organic above prior-year figure (3.6 percent) growth growth • Restructuring taking hold, cost base Book- decreasing to-Bill 0.9 1.0 1.0 1.0 1.1 EBITA 34 14 31 39 36 adj. Bilfinger SE | Capital Markets Day | February 14, 2017 page 9
Power: Selective order intake in challenging markets -39%/-34% • Orders received in Q4 at prior-year level, however FY well below prior year, 356 as expected. 1.5% 247 258 243 218 -2.7% -4.1% -0.4% • In view of the competition and price -5.5% pressure, highly-selective approach in the German and international project Q4/15 Q1/16 Q2/16 Q3/16 Q4/16 business Y-o-Y Organic x/x EBITA adj. Margin (%) Output Volume (m€) growth growth • Output volume continued to decline significantly as planned Book- 0.5 0.9 0.7 0.6 0.8 • Low capacity utilization in some units to-Bill as well as weak project performance impacted EBITA adjusted EBITA adj. 6 -7 -11 -1 -12 Bilfinger SE | Capital Markets Day | February 14, 2017 page 10
SG&A costs reduced significantly, but ratio still well above benchmark Adjusted Gross Margin (m€) Adjusted SG&A (m€) 445 (8.9%) 412 14 (9.8%) 22 17 47 431 Adjustments -529 -481 395 (8.6%) Reported (-10.6%) (-11.4%) (9.4%) -434 -507 (-10.3%) FY 15 FY 16 (-10.1%) Act Act FY 15 FY 16 Act Act Bilfinger SE | Capital Markets Day | February 14, 2017 page 11
Operating cash flow significantly below extraordinary high prior year, also due to reversal effects 1) Adjusted cash flow from operating activities (m€) Net Profit (m€) 271 188 -71.3% 173 n.a. 271 Adjust- 39 134 39 153 551 Continued Operations ments 17 64 Discontinued Reported 149 54 -224 -279 Operations 32 -591 -1 Minorities 22 -71 Net Profit -510 Q4/15 Q4/16 FY/15 FY/16 -510 1) Adjustments according to EBITA adjusted FY/15 FY/15 FY/16 FY/16 Trade Working Capital Development Net Liquidity (m€) -136 510 2 516 -71 966 -58 -153 67 60 74 58 -40 500 31.12.15 OCF adjusted Adjustments Net Capex Disposals CF disc. Op. Other 31.12.16 31.12.15 31.12.16 31.12.15 31.12.16 2) 2) Net Trade Assets (m€) DSO (days) DPO (days) 2) Definition DSO: Receivables and WIP, DPO: Payables and prepayments received Bilfinger SE | Capital Markets Day | February 14, 2017 page 12
Strong foundations to build on
Starting position Extensive analysis since mid-2016 Procedure • Deep analysis of the company, its markets and its customers • Evaluated our strengths, opportunities and challenges • Analysis based on decades-long industry experience of top management team Products • Exceptional profile: consistently No. 1 supplier of industrial services for the process industry in Europe • Demand for engineering and services is strong and getting stronger People • Deep expertise, knowledge and best-in-class practices • Multiple restructuring phases led to brain-drain and loss of direction • Long-standing customer relationships Structure • Very fragmented, non-integrated sub-optimal structure • Silo mentality not reflective of market demands • Tremendous potential but unrealized opportunities Bilfinger 2020: Creating a strong basis for profitable growth Bilfinger SE | Capital Markets Day | February 14, 2017 page 14
Back to Profitable Growth 2 Service Lines, 4 Regions, 6 Industries Our ambition We engineer and deliver process plant performance 2 Service Lines 4 Regions 6 Industries • E&T – Engineering & • Continental Europe • Chemicals & • Pharma & Where to play Technologies • Northwest Europe Petrochem Biopharma • MMO – Maintenance, • North America • Energy & • Metallurgy Modifications & Operations Utilities • Cement • Middle East • Oil & Gas People & Customer & Organization & Financials Culture Innovation Structures How to win Bilfinger SE | Capital Markets Day | February 14, 2017 page 15
Raising the growth potential
Industrial service market Continuous growth of operating plants • Number of plants in our defined markets growing constantly Number of plants in our markets 45k • More than 75% of plants are over 10 years old and number 12k of ageing plants increasing 32k • Complexity of plants is increasing with positive effect on service requirements 7k • Ageing plants require higher level of maintenance and 20k modernization 4k 33k 12k 25k • Customers demand greater efficiency 4k 16k • Authorities impose stricter environmental standards on plant 8k operators (reduced emissions) 1970 1990 2010 2020 active plants under 10 years old Structural demand for industrial services active plants over 10 years old Source: Industrial Info Research Bilfinger SE | Capital Markets Day | February 14, 2017 page 17
Competitive Landscape (Selection) Unique value proposition for E&T and MMO business E&T Geographic scope MMO Bilfinger SE | Capital Markets Day | February 14, 2017 page 18
Bilfinger Market Model Contracted out market is USD 125 bn and rising Total service market (2-4-6) Contracted out market (2-4-6) Contracted out market by regions and [USD bn] [USD bn] industries (2016) Northwest Europe Middle East 2.6% 256 231 Regions Continental Europe 110 E&T 98 +2.9% 3.4% 143 North America 125 71 E&T Cement Metallurgy 63 +3.1% Pharma & 146 Oil & Gas Biopharma 132 +2.4% MMO Industries 62 72 MMO +3.7% Energy & Utilities 2016 2020 2016 2020 Chemicals & Petrochem Note: E&T market volume comprises projects up to USD Mio 100 Bilfinger SE | Capital Markets Day | February 14, 2017 page 19
Bilfinger Market Model Different market dynamics in different segments Contracted out market / Bilfinger revenues – Contracted out market – Growth per region [CAGR 2016-2020, nominal] Growth per industry [CAGR 2016-2020, nominal] Bilfinger Share of Share of growth Bilfinger output Bilfinger output strength volume1 volume1 Chemicals & Continental 3.5% ~45% 2.1% ~60% Petrochem Europe Energy & 3.1% ~20% Utilities Northwest 3.6% ~20% Europe Oil & Gas2 4.1% ~15% North Pharma & 3.6% 2.5% ~5% America ~15% Biopharma Metallurgy 2.2% ~5% Middle 4.7% East ~5% Cement 3.8%
Delivering world class performance
Service Portfolio Strong offering for capex and opex driven services E&T – Engineering & Technologies OPEX Packaged Units Turnarounds Efficiency Modifications Maintenance Expansions Operations Plant Expansions Emissions Maintenance Contracts CAPEX MMO – Maintenance, De-Sulfurizations Modifications & Operations Operations Bilfinger SE | Capital Markets Day | February 14, 2017 page 22
Go-To-Market organization Market focus, customer centric E&T – Engineering & MMO – Maintenance, Technologies Modifications & Operations 6 industries Planning Oil & Gas Continental Europe International Regional Chemicals & Petrochem Execution Northwest Europe Energy & Utilities Pharma & Biopharma Technologies Middle East Metallurgy Construction Cement North America 22 plant types Bilfinger SE | Capital Markets Day | February 14, 2017 page 23
Innovation MMO World Class Maintenance Differentiated Proposition • Leading MMO provider in Europe • Engineering credentials • Full service provider • Proprietary and unique Bilfinger Maintenance Concept • International / regional footprint • Health and Safety excellence • People excellence Bilfinger SE | Capital Markets Day | February 14, 2017 page 24
Innovation MMO Bilfinger Maintenance Concept to deliver process plant performance • BMC is a world class and proven concept to significantly improve maintenance performance • Maintenance concepts are analysed and optimized along 16 standardized modules • More than 30 tools help to increase HSEQ performance, increase Hands on Tool time and reduce maintenance overhead costs • Over time, the share of proactive based maintenance is increased and therefore reactive maintenance can be reduced • More than 400 projects to assess and improve maintenance in process industries have been successfully completed with BMC Bilfinger SE | Capital Markets Day | February 14, 2017 page 25
Performance MMO BMC has reduced maintenance costs at Yara Glomfjord consistently Maintenance costs and Production Volume (indexed) 120 108% 100% 100 80 Maintenance - Direct Costs • Reactive • Scheduled / Periodic 60 • Proactive Preemptive 40 20 0 Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Maintenance cost (nominal amounts) and production development over 10 years Bilfinger SE | Capital Markets Day | February 14, 2017 page 26
Digitilization Smart App, SPA Platform Integration and Planning Efficiency From PRO-ACTIVE to PREDICTIVE • Digitalization integral to MMO strategy • Execution efficiency • Planning efficiency • Supporting asset integrity • Seamless interface to customers • HSE assurance Bilfinger SE | Capital Markets Day | February 14, 2017 page 27
Security Integrity Digitalization drives efficiency HSE Assurance • Site access control eliminates paper based protocols • High throughput / time saving • Electronic work flow reduces risk of errors • Verification of competency and certifications • HSE compliance Fixed Mobile • Direct SAP connectivity Installation Installation Bilfinger SE | Capital Markets Day | February 14, 2017 page 28
Asset Integrity Up-to-date online plant documentation Reverse engineering An updated documentation set is created using existing documentation and laser scanning Main output Engineering database with digital plant model • Updated P&ID • Single source for all information • Revision control documentation • Data consistency • Data integrity • Data accessibility Bilfinger SE | Capital Markets Day | February 14, 2017 page 29
Asset Integrity Laser scanning technology Data Model As-built 3D Laser Scanning processing intelligence model On-site data capture. Pixel cloud converted 3D model imported Output is a complete Millions of points of to 3D model and plant information 3D model source for 3D data stored is incorporated for isometrics, BOM, each component MTO, P&ID … Bilfinger SE | Capital Markets Day | February 14, 2017 page 30
Digitilization Laser Scanning Bilfinger SE | Capital Markets Day | February 14, 2017 page 31
Health Safety Environment Key differentiator Differentiated Proposition • Recognized HSE leader • Bilfinger HSE: People, training, qualification and certification • Our people can work safely in dangerous environments • Strong track record in HSE performance • Key benefit for our customers and a key competitive advantage for us Bilfinger SE | Capital Markets Day | February 14, 2017 page 32
Access Deliver customer needs Bilfinger SE | Capital Markets Day | February 14, 2017 page 33
Scaffolding Innovative magnetic anchoring CHALLENGE SOLUTION • “Normal anchoring” for scaffolding is • Bilfinger’s scaffolding with magnetic anchor not always possible with storage tanks points uses permanent magnets to attach a slim scaffolding construction to the steel tank • Large, pyramid-shaped scaffolding with wall additional ballast weigh is required in certain cases • Scaffolding construction tailored to the client using 3D infinite elements software to simulate • Client sought stable scaffolding forces on every magnetic anchor point and to construction on an ethylene tank in a simulate external influences like wind and safer, quicker and more cost-effective weather way Bilfinger SE | Capital Markets Day | February 14, 2017 page 34
E&T at a glance Covering entire life-cycle of process plants Modifications Expansions Efficiency Emissions Planning Execution Technologies Construction Bilfinger SE | Capital Markets Day | February 14, 2017 page 35
Process Plant Performance Process critical units (packaged units and skids) Credentials • Almost 200 years of engineering tradition and heritage • Delivering „Performance“ Gas storage Piping • Efficiency • Expansions • Emissions • Packaged units in each of our six Bioreactor Containment Liner targeted industries Bilfinger SE | Capital Markets Day | February 14, 2017 page 36
E&T Construction Differentiated Proposition • Track record in our key industries • Experience data base -> cost, risk, etc. • Industrial projects from $10 million to $200 million • Piping at the core • HSE excellence Bilfinger SE | Capital Markets Day | February 14, 2017 page 37
E&T Emissions & Environmental Product portfolio • Legislation driving emissions / environmental requirements and upgrades • De-salination (forward osmosis) • CO2 recovery unit • Flue-gas de-sulfurization • Marine de-sulfurization Bilfinger SE | Capital Markets Day | February 14, 2017 page 38
Connecting the dots to deliver more
Strategic assessment of all entities Value add potential and strategic relevance Power with value add potential Bilfinger ‘from yesterday to today’ Parts of the portfolio for OOP • Services for multiple industries, MMO • Other Operations are e.g. refineries Power Oil & entities with lower degree of Gas strategic fit to 2-4-6 • Engineering competences, e.g. gas processing • Profitable businesses with improvement potential are • Projects, Engineering “managed for value” e.g. chemical plants Solutions E&T Industrial Maintenance • Some entities identified as • Fabrication, e.g. processing inlet / & ISP dilutive are going to be outlet or gas oil separation plants OOP fixed and sold Targeted approach for structuring and integrating Bilfinger SE | Capital Markets Day | February 14, 2017 page 40
Driving profitable growth Three major growth levers for above market profitable growth Comparison of growth rates Growth levers and growth impact [CAGR 2016-2020 in %] In line with market Above market Outpace market Continental Northwest North More than 20 growth Middle East initiatives detailed, Europe Europe America Total including: 2.6% market A MMO: Expand share of wallet in home market, • References develop growth regions • Rationale and tactics Contracted B • Pre-requisites out 3.4% E&T: Go-to-Market push in growth regions and mitigation market • Financial effects C • Responsibilities and milestones All: Expand Bilfinger value chains into hitherto Bilfinger underserved industry segments organic >5% growth1 Tracking will be included in group wide tracking tool B TOP 1 CAGR 2017-2020 in % Bilfinger SE | Capital Markets Day | February 14, 2017 page 41
Company Program „B TOP“ Key initiative for Bilfinger Initial situation Transforming Operational Performance • Past improvement programs successful but limited to SG&A • Several local operational improvement measures • Setting clear and • Sticking to ambitious targets • Operationalize ambitious targets but overall still potential financial targets for more performance • Clear • Organic growth responsibilities • Benchmark key • New management team • Defining + improvement + • Operational well experienced in levers excellence measures and culture comprehensive and • Profit transition tracking continuous improvement implementation programs for high performance culture Bilfinger SE | Capital Markets Day | February 14, 2017 page 42
Value Proposition Example Oil & Gas onshore Gas Nitrogen Water and gas Separation Dehydration Oil treatment compression generation treatment Process steps served by Bilfinger Engineered integrated solutions Gas dehydration unit A&C site activities Heat recovery package unit Safety service activities Regeneration package unit Bilfinger SE | Capital Markets Day | February 14, 2017 page 43
Improving our financial performance
E&T and MMO Bilfinger Revenue Model E&T – Engineering & Technologies • Project Based C. Duration: 3-18 months • Multi-year Service − Lump-sum Turnkey Duration: 3+2 years Contract - Unit rates − Time & Material Contract - Day rates • Packaged Units / • Regular Modifications Technology • Periodic Turnarounds MMO – Maintenance, Modifications & Operations Bilfinger SE | Capital Markets Day | February 14, 2017 page 45
Bilfinger 2020 Creating a world class company Value Stabilization Build up Build out • Organic growth and targeted acquisitions • Increasing financial • Organic growth and performance possible selected bolt- on acquisitions • Focus on core services, • Self-help and industries and regions connecting the dots • Capitalizing our • Establishing 2-4-6 structure exceptional profile • Avoid risk • Manage risk • Consolidate best practice • Offering our services from across the firm along all value chains • Reduce SG&A • B TOP Excellence • B TOP Implementation Time Bilfinger SE | Capital Markets Day | February 14, 2017 page 46
People and culture
Key personnel Experienced international operational management team Engineering & Technologies MMO – Region Continental Europe MMO – Region Northwest Europe Michael Löffelmann Gerald Pilotto Duncan Hall Executive President (from 04/17) Executive President Executive President 16 years of industry experience 22 years of industry experience 25 years of industry experience Jean-Pierre Pasquereau Matti Jäkel Clive Kendal Executive President Financial Director Financial Director 38 years of industry experience 28 years of industry experience 28 years of industry experience Jens Borgschulte MMO – Region North America MMO – Region Middle East Financial Director 26 years of industry experience Terrance Ivers Dr. Roland Gärber Executive President Executive President 35 years of industry experience 15 years of industry experience Other Operations Niklas Wiegand Volker Sembill Stefan Herschler Executive President Financial Director Financial Director 13 years of industry experience 10 years of industry experience 20 years of industry experience Bilfinger SE | Capital Markets Day | February 14, 2017 page 48
The Bilfinger Way Mission statement enabling change • We make it work: The passion of all our employees is to increase our customers’ plant performance • Our Values: The three Cs guide us in our tasks and give us a clear direction • Aligned Competencies: Our common strengths define “The Bilfinger Way” to success • Integrity and safety: Our foundation and aspiration is to never compromise on integrity and safety Common direction and a high commitment to the Bilfinger Way Bilfinger SE | Capital Markets Day | February 14, 2017 page 49
Our employees Key differentiator Status quo Priorities High level of competence and technical expertise • Talent Management • 5,500 engineers Development, retention and • 25,000 skilled experts succession planning • Overall 37,000 employees Bilfinger Academy • Bilfinger Academy 2.0 • Tailored programs to secure standards and steady Expanding competencies improvement of leaders and staff internationally to blue- and white- • >40,000 e-learnings; >5,000 training days collar workers HR tools • Project HRcules • Various best practices along all steps of the Standardization and automation of employee lifecycle: on-boarding, appraisals and HR processes incentives Significant investments in our people and in efficient HR processes Bilfinger SE | Capital Markets Day | February 14, 2017 page 50
Compliance Top priority • Strengthening culture of integrity: Prevent, detect, response as strong measures of our effective compliance program • One simple set of rules: New mission statement, new code of conduct, new group policies for the whole group Response • Outstanding team: Highly experienced General Counsel & Chief Prevent Compliance Officer, Monitor and external advisors • High investments: Spend of in high-double-digit-million-€- amount in previous as well as in coming years for implementation of effective compliance and integrity program as well as for conclusion of older cases Detect • Continuous improvement: Rollout of further state of the art compliance processes and regular review of effectiveness Creating a world class compliance system Bilfinger SE | Capital Markets Day | February 14, 2017 page 51
HSEQ Fundamental focus in our business Status quo Priorities • Awareness Track record of outstanding achievements Further reinforcement of ‚safety • Entire regions without an incident for up to a decade works‘ • Learning High level of HSE standards Enhancement of e-learning • Experienced experts across the Bilfinger group offerings Safety focus important part of our DNA • Root cause analysis • Best practice initiatives as part of continuous Improvement of available best improvement practices Reinforcement of high level of HSEQ standards Bilfinger SE | Capital Markets Day | February 14, 2017 page 52
Aligned incentives Effective going forward Status quo Priorities Executive Board: • Standardized Scheme in place • Short-Term Incentive: EBITA and Free Cash Flow • Long-Term Incentive: ROCE and TSR (vs. MDax) Management Level 1: • Alignment • Mainly standardized scheme in place Introduction of Long-Term Equity based linked • Short-Term Incentive: EBITA and Free Cash Flow Bonus to Group Targets 2020 • Insufficient long term focus • Cascading Management Level 2 ff: Instantly increasing focus on cash and • Lack of standardization alignment additionally breaking down of targets throughout the Management levels Focusing efforts through aligned incentive schemes Bilfinger SE | Capital Markets Day | February 14, 2017 page 53
Outlook Bilfinger 2020
Our analysis for sustainable und profitable growth Our market What we are How to win $ 125 bn CAGR ~3.4 % 2-4-6 Market Focus & Customer Centric People, engineering, credentials, customer proximity, innovation >5 % top line CAGR1 1 CAGR 2017-2020 in % Bilfinger SE | Capital Markets Day | February 14, 2017 page 55
Execution Plan
Ambitions will be achieved in three stages Value Build out Build up Stabilization Time What does it mean in numbers? How will we execute? How will we measure and report progress? Bilfinger SE | Capital Markets Day | February 14, 2017 page 57
Company ambition is derived from a comprehensive analysis Market Model: Growth and Benchmarks / Peer Group Industry Profit Pool comparison Ambition 2020*: Organic CAGR** >5% EBITA adj. margin ~5% Root Cause and Lever Historical Performance Analysis Own competences * Mid-cycle targets ** Based on FY 2017 Bilfinger SE | Capital Markets Day | February 14, 2017 page 58
Margin ambition is supported by an extensive profit-pool analysis Adjusted EBITA margin Profit pool according to FY 2016 Bilfinger profile1 (Mix FY 2020) • E&T with a defined path to improve profitability 5 to 9% E&T E&T • Entering blended margin range towards the end of the planning period EBITA • Based on growth investments 2017 to -2.4% 2020 business mix will improve beyond 2020 and lead to further upside potential E&T FY 2016 Blended margin range Bilfinger profile 2020 • Stable MMO business already within blended margin range 3 to 5.5% • 2018ff: Margin improvement towards MMO 4.9% upper end of blended margin range EBITA • Based on growth investments 2017 to 2020 business mix will improve beyond MMO FY 2016 Blended margin range 2020 and lead to further upside potential Bilfinger profile 2020 1) Estimate based on expected Bilfinger revenues and typical profitability in relevant segments (“Homunculus”), mid-cycle i.e. stable economic environment Bilfinger SE | Capital Markets Day | February 14, 2017 page 59
We will address all P&L line-items GROSS MARGIN • LOA1 process • Project management Impact on gross margin: ~200bps AMBITION2 ADDRESSING BOTH LINE ITEMS EBITA margin • Process and IT harmonization increase of • Procurement ~500bps by 2020 Impact on SG&A RATIO SG&A ratio • Lean headquarters ~300bps • Lean structures in the field 1) Limits of authority 2) Mid-cycle targets Bilfinger SE | Capital Markets Day | February 14, 2017 page 60
Overall ~100bps gross margin improvement from project excellence measures by 2020 Define limits of authority Timeline: fully LOA PROCESS in relation to defined risk implemented 2017 categories Improvement, PROJECT standardization and Timeline: fully MANAGEMENT enforcement of project implemented 2018 management process Bilfinger SE | Capital Markets Day | February 14, 2017 page 61
Root cause analysis: mid-sized projects with most significant loss impact Root cause analysis on projects over a period of several years • Most projects >50m EUR were profitable • Most significant impact from projects between 5 and 25m EUR project size Gross profit 0 Project size Bilfinger SE | Capital Markets Day | February 14, 2017 page 62
Root cause Analysis: Issues mainly originate in early stages, detection rather late • Detection of deviation plan/actual rather late 40% in the execution 20% Deviation in Gross profit in % • Very limited opportunity to counteract at high percentage of completion 0% • Need for clear understanding of project risk -20% and own competences before bid is submitted -40% • Need for reliable early warning indicators • Need for strengthened project planning and -60% execution competence -80% -100% 0% 20% 40% 60% 80% 100% Percentage of Completion in % Bilfinger SE | Capital Markets Day | February 14, 2017 page 63
Introduction of risk-sensitive LOA processes to avoid project losses Status quo • Authorization by Executive Board based on volume- Project volume thresholds per risk class thresholds only • A number of projects with significant losses did not reach € Executive Board approval level Executive Board Way forward Responsible Board Member • Improved risk categorization, mandatory for all projects Divisional Management • Risk-based Board authorization thresholds • Approval templates differ according to risk class Regional / legal entity level • Every project which was approved by Board will be further monitored by Board Risk category “Project Days” with Executive Board Bilfinger SE | Capital Markets Day | February 14, 2017 page 64
Mandatory project management process, centrally monitored and enforced Project Management Concept • Group-wide introduction of Stage-gate Structured process Data and KPI consistent processes which collection are centrally developed and maintained • Consolidation of key project data in a single data warehouse Project • Determination of KPIs on earned manage- HR value base ment core development processes and training • Stage-Gate Reviews for tenders, short-term interval controlling based on standardized templates • Continuous monitoring of improvement Continuous improvement process (CIP) Bilfinger SE | Capital Markets Day | February 14, 2017 page 65
SG&A costs will be addressed both in headquarters and in the field Timeline: Role of HQ and implementation Lean headquarters streamline costs already started, in full swing by 2020 Reduction in number of Timeline: in full Lean structure legal entities swing by 2020 Lead company concept Bilfinger SE | Capital Markets Day | February 14, 2017 page 66
Headquarters costs will be reduced to 1% of output volume • Role of HQ: Strategic Controller, i.e. business related activities will move into divisions • Current FTE ambition for 2018/2019 includes investment for improvement of internal control systems • Transparent and clear cost ownership to be established • Significant savings potential from lower consulting expenses -30% 315 89 280 80 220 ~1% of output volume Average HQ costs FTE adj.* HQ 2015 2016 … Target 2015 2016 Target Ambition after 2020 2018/2019 full ICS implementation and Process/IT * on a comparable base after re-allocation of Government Services to MMO harmonization Bilfinger SE | Capital Markets Day | February 14, 2017 page 67
Reduction of organizational complexity will reduce SG&A costs and increase speed • Currently, only in some countries (e.g. GER) enough critical 279 mass for Shared Services ~-40% • Many small entities which can be served by lead company 232 concept Operating • In the course of IT roll-out (ERP and HR) additional Legal opportunities for shared services and outsourcing will arise Entities 160 • Liquidations and mergers taking into account legal and Non- tax-related aspects operating • Significant reduction targeted Legal Entities • Limited direct cost savings, but significant reduction of complexity which leads to higher efficiency 31.3.2016 Current Ambition* *Ambition: excludes potential acquisitions Bilfinger SE | Capital Markets Day | February 14, 2017 page 68
Lead company concept for pragmatic regional bundling Functions Consolidation approach Impact on functions • Transactional, not Legal Entity (LE) – or business-specific functions to be Finance: Transactional functions transferred to Lead Company unless • Finance function largely covered provided by shared service center by lead companies • Smaller associated companies with shared CFO • Non-transactional, not LE- or business- Not LE-/ HR: specific functions to be transferred to Non- business- specific Lead Company • Main HR work in lead companies trans- actional • Associated companies w/o head func- • Non-transactional, LE- or business- of HR, but with locally required HR tions LE-/ specific functions will mainly be activities business- retained in local LE Comparable approach for IT, specific • Selected activities may still be Purchasing, etc. transferable to Lead Company – hence function-specific investigation required Bilfinger SE | Capital Markets Day | February 14, 2017 page 69
Example North America Reduction of complexity combined with lead company concept Current Structure: Target Structure: Bilfinger SE Bilfinger SE Gross savings of ~30% of Bilfinger Industrial Services N.A. Holding Inc. FCHC Corporation (inaktiv ) today’s cost base: BIS Holding Optimizing SG&A Bilfinger Industrial Bilfinger Westcon Centennial Holding costs through Centennial Bilfinger Salamis Inc. FCC Corporation Corporation Inc. Bilfinger Industrial Inc. Bilfinger Salamis Inc. improvement of Services Inc. (inaktiv ) Bilfinger Westcon Inc. Contractors Services Inc. Enterprises Inc. processes and bundling of administration Centennial Contractors Enterprises Inc. activities, while • Harmonize ERP-systems • No bundling within the North American entities investing in • Reduce Management FTE’s through functional • Functions have been partially outsourced sales-front offices bundling (e.g. IT, Legal, Taxes) in line with growth • Bundle Accounting, Payroll and IT in particular • 5 operating companies, 4 ERP-Systems incl. opportunities (FTE-savings in this area around 30%) various subsystems • Reduce consultant costs in Legal and Tax while ensuring faster utilization of tax-loss-carry forwards • Office bundling Bilfinger SE | Capital Markets Day | February 14, 2017 page 70
Build-up of customer-facing SG&A only if growth potential is materializing • Measures defined to reach savings targets • Build-up of additional costs depends on • Degree of implementation varies order development according to plan • Additional measure buffer will be built up to Structural increase probability improvements: • Monitoring concept will ensure transparency and discipline • Within “G&A”: • Reduction of bureaucracy 434 7.5% of output • Increase of volume customer focus >-100 • Within “S”: • From back-office to SG&A costs front-office • From Europe to growth markets • From established to new industries FY 2016 adj. Current SG&A Build-up 2020 program customer-facing sales activities Bilfinger SE | Capital Markets Day | February 14, 2017 page 71
Process and IT harmonization as well as improvements in sourcing are supporting the margin ambition Timeline: Process and IT Wave-approach, in Harmonization Bilfinger IT Strategy full swing by 2020 Timeline: Continuous Procurement Bilfinger Purchasing improvement Initiative Strategy of contribution to earnings Bilfinger SE | Capital Markets Day | February 14, 2017 page 72
ERP target for 2019 includes 5 systems, all SAP-based simplified Current landscape 22 ERP systems Harmonized and complexity reduced target ERP landscape based on 5 SAP systems SAP systems Input: delivery processes SAP systems SAP systems SAP systems Global single SAP systems 7 SAP SAP systems SAP HR system environments SAP P09 PSH- Consolidated DI3 target project SAP P14+ 6 Navision system SAP MC1 SAP CSP ….. environments …. Global CRM Business Intelligence Sales Force Ecaxt Profitoool 9 Other environments Value Stabilization Build up Build out Global harmonization of 6 key processes: 2020 2019 There is additional • Purchase to Pay potential to further 3rd migration wave • Market to Order 2018 2nd migration wave integrate the ERP • Order to Cash landscape to a single 2017 1st migration wave ERP beyond 2019 • Hire to Retire • Investment to Disposal Design and build of global • Book to Report template Time Bilfinger SE | Capital Markets Day | February 14, 2017 page 73
Significant investments in IT and process harmonization leading to greater efficiency and transparency • Investment of ~€50 million mainly in FY 2017 and 2018 • Cost improvement program targeting run costs: Organizational • Transformation into global IT organization in combination structure & governance with lead company concept • Preparation of Cloud solutions, e.g. for email and collaboration Business value • Reduction of number of servers (potentially outsourcing) Innovation • Retirement of old ERP systems partner IT strategy • Ambition for 2020: IT costs within benchmark range: Benchmark Today 2.2% of output volume IT costs Ambition of 1.8% while supporting (internal and external) customer benefits and innovation Bilfinger SE | Capital Markets Day | February 14, 2017 page 74
Procurement initiative will lead to higher productivity Status Quo Ambition 2020 • In general low maturity level • High maturity level • Global sourcing not across regions and established categories • Many manual process • Savings linked to P/L steps • Digitalized procurement • Lack of data • Data driven sourcing transparency Procurement spend break-down [in bn EUR] ~2.1 Mainly Services Potential of Thereof Impacting Material & Products >50 bps EBITA Spend “own” P&L ~1.0 margin impact overall Directs Includes: IT & Telecoms, Indirects Fleet, Real Estate, etc. Bilfinger SE | Capital Markets Day | February 14, 2017 page 75
Stopping the cash drain is a key management priority Status Quo Free cash flow development Root causes Measures 136 Free cash flow Free cash flow adjusted Overhead SG&A efficiency program 2 Project management Project losses initiatives -111 Working Working capital management capital -264 2015 2016 Bilfinger SE | Capital Markets Day | February 14, 2017 page 76
Working capital management with focus on shortening the approval and billing process 74 Measures: Measures: • Reduction of WIP through 58 • Increased bundling leads to process improvement better negotiation position, Administration e.g. payment terms Operations • Rejection Rate / quality in Speeding up billing the control of invoices • Contract analysis, e.g. billing conditions (required documentation), flat-rate billing, payment terms • Billing quality DSO 12/31/2016 DPO Supported by increased cash focus in 2017 incentive system Bilfinger SE | Capital Markets Day | February 14, 2017 page 77
Measures to reduce the time between service completion and customer acceptance offer significant self help potential 1 | Procurement 2 | Goods and Services 3 | Invoicing 4 | Receipt of Payment Supplier / Internal Resources Client Cash Subcontractor • Inventory • Receivables Collection • Liability • Work in Progress [DPO] [DSO] Working Capital WIP Receivables Overdue • ~20% of DSOs* • ~65% of DSOs • ~15% of DSOs Fast and comprehensive • Customer has to • Improvement of • Esp. regional documentation of rendered accept service before payment terms rather differences services to get customer billing process can be difficult with blue chip acceptance earlier initiated customers *WIP minus prepayments received Bilfinger SE | Capital Markets Day | February 14, 2017 page 78
New organizational setup supports strategy implementation and 2020 ambition E&T MMO In every region: • Concentrated know-how • Customer proximity • Centralized project governance • Management of capacity utilization • Leverage high-value resources • More collaboration and cross selling • Enables fast roll-out of innovations • Higher SG&A efficiency Use International Scale Use Regional Scale Bilfinger SE | Capital Markets Day | February 14, 2017 page 79
How this translates into E&T segment performance in € million FY 2016 Going forward Orders received 1,219 2017: Stabilization of orders 2017: Output volume decrease expected CAGR 2018-2020 above Group average Output volume 1,246 Important growth areas: North America France, U.K. (Nuclear) New customers in Pharma & Bio-Pharma 2017: positive EBITA adjusted Adj. EBITA-margin -2.4% Entering blended margin range towards the end of the planning period Focus on implementation of new organization and on Organization improvement in project management Bilfinger SE | Capital Markets Day | February 14, 2017 page 80
How this translates into MMO segment performance in € million FY 2016 Going forward Orders received 2,422 2017: Positive trend in orders 2017: Slight output volume decrease CAGR 2018-2020 below Group average Output volume 2,461 Important growth areas: North America (Chemicals & Petrochem.) Middle East 2017: Decline in EBITA-margin Adj. EBITA-margin 4.9% 2018ff: Margin improvement towards upper end of blended margin range Organization Impact of new organization also a cost benefit Bilfinger SE | Capital Markets Day | February 14, 2017 page 81
Other Operations includes accretive businesses with significant value Aiming for disposal in the longer run 615 • Dilutive business with 13 entities to be sold or liquidated within 18 months sold in 2016 109 • 1 already sold • 3 entities currently with signed SPA and final closing shortly expected • Negative cash-effect and capital loss when selling (~30 million €) dilutive 148 • Five entities individually managed for value while selectively leveraging on Group resources and capabilities • Profitable business with improvement potential accretive 386 • Clear exit strategy within next 5 years • Management will be incentivized on value created • Monthly reviews to track successful implementation of individual value creation plans consolidation -28 2016 Output Volume Bilfinger SE | Capital Markets Day | February 14, 2017 page 82
Benefit from 49% of the value creation at Apleona Vendor‘s Note: €100m, 10% interest p.a. upon maturity Preferred participation note (PPN): • No management involvement • Certain information rights, some further rights • Investment: €195m • If value develops positively, P&L neutral appreciation Will receive 49% of sales proceeds (after repayment of debt) at exit Typical money multiple of owner would lead to a significant value upside Bilfinger SE | Capital Markets Day | February 14, 2017 page 83
Additional efficiency measures needed to reach ambition 2020 leading to slightly higher special items 285 In € million Dec. 31, 2016 Cash and cash equivalents 1,032 Financial debt Restructuring -522 and 135 145 Net cash 510 SG&A efficiency Pension provisions -304 165 Expected cash-out disposals Approx. -30 IT investments 50 75 Financial assets (Apleona, JBN) 320 90 80 Future cash-out special items Approx. -285 Compliance 50 60 Intra-year working capital swing Approx. -100 50 Warranties related to 50 Valuation net cash Approx. 100 25 sale of Building 50 and Facility 40 • Management keeps focus on all cash items 0 Future 2017 2018 2019ff Future P&L 2017 2018 2019ff • This is supported by incentive system payout from effect from special special items items Bilfinger SE | Capital Markets Day | February 14, 2017 page 84
Company program B TOP will ensure execution and drive the implementation of a high performance culture Transforming Operational Performance Closed Loop Net PL T arget steady state TOTAL MD2-MD5 steady state Measure Type A Net PL Target steady state Impact MD2-MD5 Measure Type B Net PL Target steady state Impact MD2-MD5 Measure Type C Net PL Target steady state Impact MD2-MD5 Integrated approach for continuous improvement impact 2018 impact 2018 [%] impact 2018 2017 [%] impact 2018 2017 [%] impact 2018 2017 [%] Org Unit PL Responsible[EUR] [EUR] Fullfillment [EUR] [EUR] Fullfillment [EUR] [EUR] Fullfillment [EUR] [EUR] Fullfillment Region 1 Name 1 0 0 0% 0 0% 0 0% 0 0% set clear and ambitious targets Target Matrix Region 2 Region 3 Region 4 Cross Name 2 Name 3 Name 4 Name 5 0 0 0 0 0 0 0 0 0% 0% 0% 0% 0 0 0 0 0% 0% 0% 0% 0 0 0 0 0% 0% 0% 0% 0 0 0 0 0% 0% 0% 0% HQ Name 6 0 0 0% 0 0% 0 0% 0 0% TOTAL - define measures, track implementation ensure P&L impact Measure Implementation Progress by Maturity Degree Organic growth SG&A High value services Profit Operational excellence Transition OPEX reduction 1st idea, implementation First (P&L-) implementation actions savings target concept, effects and started complete steady state Wave 1 Wave 2 definition business plan Actual Price, Productivity Target 2016 Inflation Measures 2020 MD1 MD2 MD3 MD4 MD5 • clear responsibilities • operationalize financial targets • stick to ambitious goals • monthly implementation tracking + • benchmark key improvement levers + • cultural change High performance culture Bilfinger SE | Capital Markets Day | February 14, 2017 page 85
Implementation of B TOP requires substantial initial efforts but creates a sustainable productivity engine FY 2017 FY 2018 FY 2019 FY 2020 Measure tracking pre-tool tool-based Conceptual work Program rollout IT tool implementation1) Training in the field concept & IT tool review and optimize IT tool productivity wheel in full swing [rollout] [ramp up] [steady state] 100% high performance culture implementation degree high performance culture implementation effort B TOP comprehensive transformation program for profitable growth through cultural change Bilfinger SE | Capital Markets Day | February 14, 2017 page 86
FY 2017 will be the year of stabilization Starting Point Outlook2) in € million FY 2016 expected FY 2017 Orders received 4,056 Organic increase Output volume 4,219 Mid-to-high single-digit organic decline Adjusted EBITA / Continued improvement 15 / 0.4% EBITA margin Margin increase ~100bps €0 €1.00 Dividend proposal1) (paid for FY 2015) (paid for FY 2016) 1) subject to a corresponding resolution by the competent boards 2) Assumption: on a comparable F/X basis Bilfinger SE | Capital Markets Day | February 14, 2017 page 87
Intention to resume dividend payment and execute Share Buyback program while targeting investment grade mid- to long-term Intended • In 2017 for FY 2016: €1.00 Dividend • Forward floor of €1.00 Policy* • Sustainable dividend stream going forward: 40 to 60% of adjusted net profit Intended • Cancellation of current treasury shares (4%) minus shares to be retained for employee share programs Share • Executive Board will propose to the Supervisory Board to request shareholders approval for a new 10% share buyback authorization Buyback • Executive Board intends to propose to the Supervisory Board a share buyback program of up to €150m Program* to be executed in FY 2017 and 2018 • Consideration of synergetic M&A begins with the initiation of phase II of the strategy M&A • EBITA accretive one year after integration, ROCE beats WACC two years after integration Criteria • Immediate start of comprehensive integration * Based on current expectations and execution of presented strategy as well as on economic outlook at the time. Financial Subject to • Ambition: (mid-term perspective) Investment Grade Policy necessary approvals by supervisory Board and AGM Bilfinger SE | Capital Markets Day | February 14, 2017 page 88
Ambition 2020 will be reached in three phases with clear milestones Value Stabilization Build up Build out • Strategy defined • Top line growth resumed • Process and System • Organization announced • First successes in new growth areas harmonization fully rolled out • Execution master plan • New organization in full swing • Performance culture • Top Management Team • Consistent project management established • Dividend proposed process established • Productivity wheel in full swing • B TOP rolled out • Net Profit break-even • Complexity significantly • LOA Process rolled out • Adj. FCF positive latest in FY 2018 reduced • SAP roll-ins commenced • Share buyback completed • CRM implementation started • Successfully refinanced Financial ambition reached • Cash focus in incentive system increased • Operating performance improved Time Bilfinger SE | Capital Markets Day | February 14, 2017 page 89
Wrap-up
Bilfinger 2020 Financial ambition Organic Growth Profit Cash Return • Positive adj. FCF at the • EBITA adjusted ~5% Post-tax latest from 2018 onwards • Gross margin ROCE2 reported: >5% CAGR • Over the cycle, from 2018 improvement by ~200bps 8 to 10% based on FY 2017 onwards: Cash Conversion • SG&A ratio reduction by Rate ~ 1 (minus growth ~300bps adjustment)1 Capital Structure Investment Grade (mid-term perspective) Sustainable dividend stream going forward Dividend Policy Policy: 40 to 60% of adjusted net profit 1Cash Conversion Definition: (Adj. EBITA + Depreciation – 2 Capital Employed w/o PPN Change NWC - Net CAPEX) / Adj. EBITA Bilfinger SE | Capital Markets Day | February 14, 2017 page 91
Bilfinger 2020 Back to profitable growth • Bilfinger: Exceptional profile, deep expertise, long-standing customer relationships We know what we are • Market: Increasing demand, unrealized opportunities, many growth levers • 2 Service Lines, 4 Regions, 6 Industries We know what to do • 3 Phases: Stabilization – Build up – Build out • Bilfinger 2020: CAGR: >5 % EBITA (adjusted): ~5% We know where we are heading • Sustainable dividend stream going forward Bilfinger SE | Capital Markets Day | February 14, 2017 page 92
Bilfinger SE | Capital Markets Day | February 14, 2017 page 93
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