Good afternoon, ladies and gentlemen, welcome to the 2019 Bilfinger Capital Markets Day in Frankfurt. We highly appreciate that you take the time to meet the Bilfinger team today and to spend this afternoon discussing the progress in our turnaround strategy. Safety first, as we are on the top floor in this building, we would like to point out that in case of an emergency, please use the emergency exits to the terrace here and there and use the staircase downwards. The assembly point is in front of the hotel. We will start now with the presentations, which will be recorded and also streamed via internet. Later on, we will have a replay just for the presentations on the internet available for everybody. Now, let's start with the presentation of Tom Blades, and afterwards we will have the Q&A session.
Thank you, Bettina. Good afternoon, ladies and gentlemen. I think on my behalf, but also the whole team, and as you can see, the team is larger than last time. Mike and I are still the same, but we're very pleased and honored to be joined now by Christina Johansson, our new CFO, who I'm sure you've read about but many of you probably haven't yet met. This is a chance not only during the presentation but of course, obviously, afterwards. Also Duncan. Duncan, a lot of you met, I think, last year in June when we had the Capital Market Day here in Frankfurt at the trade fair. He'll explain a bit more about himself, but we're also very proud now that by having added another member and by also us having added another year to our experience curve.
We now have over 100 years of competence in the industry. I think a good team. Not only 100 years of competence but 100 years of experience. We've been through a lot of what we have ahead of us, and I think that makes us really well prepared for the future. It's my pleasure to walk you through the headlines, and then, of course, Christina is going to dive into the details. I think our single biggest headline of 2018, and I know the financial community may look at it differently. For us, it was definitely the fact that we completed our DPA or, to be more exact, our extended DPA. You will have read when we proudly announced early December that the monitor had certified us. What does the monitor certify? He certifies that the company is on an irreversible course to self-sustaining compliance.
Doesn't say we're perfect, but he says we've got systems in place that we're now able to deal with compliance ourselves. Why do I say that? Because compliance is a journey that really never ends. It's like health and safety. The day you say, "Okay, we're there," that's the day you have your accident or your incident. That's why for us, compliance has become part of the culture of Bilfinger. I think it's not only the culture, but it's also has given us self-confidence. Some years ago, people doubted whether we could make it. We've shown we can. We made it by ourselves. Yes, we had some outside help. We had a lot of guidance from Dr. Lichtenfeld. In the end, it was our team that took us there. Our team was led by Olaf Schneider. Olaf, raise your hand again.
There he is, okay, our Chief Legal Counsel. For those of you that want to learn more about compliance later on, he's the go-to guy. It also means, of course, that with our systems now in place and our newfound confidence, we feel prepared to go back into places that we left before. One of those is China. You will have read about our intents on China, that we're establishing an office in Guangzhou to support our biotech market. Biopharma units are selling into China, and as we sell more, we need to support those sales. You've also read about scrubbers, which we'll go into a little bit more later. Scrubbers are the catalyst, the cleaning mechanisms used in the marine environment to clean up their environmental act. A lot of those will be installed on ships in Chinese dry docks.
We wouldn't have trusted ourselves to do that some years ago, but now, of course, with compliance in hand, our newfound confidence and systems, we feel ready to do that and ready to go east again. The financial highlights, again, no surprise. You saw the numbers this morning. Very pleasing, I would say. I use the word pleasing, not yet satisfied. We have a way to go. We're roughly at the halfway mark on our Strategy 2020 that, in fact, we unveiled two years ago to the day, February 14th, 2017. We came out with our strategy, as you'll see as we go through this, we really haven't changed our aspirations or our own expectations. For 2018, the highlights, of course, orders received. We beat our own expectations. You recall the outlook there in the middle of the page, mid-single digit.
We topped at actually 12.5 if we go to the decimal. That's why we give ourselves two green check marks there. Revenue, also grew. You recall in our Strategy 2020, our CAGR for the whole period was 5% CAGR. We did 6% organic growth in 2018. Again, we give ourselves one check mark. EBITDA adjusted, we kept it in the, as we say here, significant increase, mid to high double-digit million amount. In Q3, at the end of Q3 rather, we became a little bit more precise and said it's going to be in the range of EUR 50 million-EUR 75 million, and we're right bang in the middle of that with our EUR 65 million, another check mark. The final box was free cash flow adjusted. Our target at the beginning of the year was to get to a break-even.
If we'd seen a EUR 4 million, EUR 5 million, EUR 6 million there, we would've been happy. We see a EUR 5 million and a EUR 656 million, I think we did well. It wasn't just by not paying people. We did well in efficiency, in driving our collections, reducing DSO, and Christina will show you more details on that. I think overall it was a year where we were able to achieve our expectations. We were able to check the boxes, not only the large ones here, but also a lot of the small ones along the way and make good progress. If I drop down a level now into Q4 performance and how that translates going forward. I think some of you didn't expect that we would do as well in Q4 on orders received. To be honest, neither did we.
You recall at the outset of the year, we expected Hinkley Point to feature in our order intake in 2018. That was shifted into 2019. We were also holding our breath a little bit. The fact is that both Q3 and Q4 in 2017 were very strong quarters. When we were able to show that in this year, or rather, the end of last year, Q4 2018, we had an organic increase of 3% over the relatively strong quarter in the year before. We are very pleased with our sales team. I think it shows that our strategy, our focus on the industries, but also our investments into business development, is really beginning to pay off. On the revenue side, it translates into revenue with some time delay, obviously.
We take in long-term service contracts, we take in projects. Of course, for that to filter through to revenue does take a while. With a book-to-bill ratio of 1.07 on the year, we're confident that not only does that fuel our revenue growth for 2018, but it puts us in a very good position for 2019. When you look at our backlog, organic increase of 12% at year-end 2018, again, gives us confidence. Therefore, we continue our momentum. We're not going to go crazy and accelerate out of control. We're going to continue at our pace and deliver on what we said we would deliver. The adjusted EBITDA, significant increase. Okay, that's not difficult because you recall in 2017 we were at EUR 3 million. You recall why. We have our project management to 99% under control.
You never have it completely under control. We don't dare say 100, but we've installed the system to make sure that we deliver our projects as predicted. Therefore, the pickup in EBITDA is, to a large extent, a result of not having those kind of mistakes and actually delivering what we said we would do. Once again, in Q4, it was our strongest quarter. Not quite EBITDA adjusted as high as the prior year. The prior year had some adjustments. When we look kind of beneath the effects, it was a good quarter. We were pleased, but also not yet satisfied. The final net profit, I think the fourth quarter net profit adjusted was the first time that we actually got through the zero line since 2014. For the year, still negative on the net profit unadjusted line.
We think we're on the way to that. Of course, we've also significantly improved over what we did in 2017. Moving on to liquidity. As already mentioned, our cash flow improved significantly, EUR 56 million for adjusted free cash flow. A large part of that was the fourth quarter performance. As in many other previous years, the fourth quarter is outstanding. We always hold our breath between Christmas and New Year. I think all of us were looking at our emails daily to get the cash report. When it came in, it was really happy New Year, we're on the way. Christina will show you more details. As I mentioned, 14 days of DSO improvement went a long way to driving that number. Our balance sheet remains relatively solid. It's performing again as expected. We concluded our share buyback last year.
That was EUR 150 million, which ran out in October, again as planned. We've also, on the basis of the numbers you've seen and on the basis of our balance sheet, we've proposed to the supervisory board EUR 1. They will propose that to the AGM to be held on the 8th of May in Mannheim, and that would then be the third year in a row that we've paid the EUR 1 kind of basis. Going forward, of course, we expect to do better than that. I think, again, it reflects the fact that we have confidence in our balance sheet, we have confidence in our planning, and that we return some of the money, especially some money that we took in in late 2016 with the sale of Apleona, we return that back to the shareholders.
Our outlook for 2019, as I said a few times in the meantime, is fueled by the strong order book. It's fueled by the progress on our strategy and our improved operating performance and more of that later. In a single number, we expect to have a baseline, if you like. We expect to do better than EUR 100 million adjusted EBITDA in 2019. With that, I would pause and ask Christina to get into the details on the numbers.
Thank you. Thank you. Thank you very much, Tom. It's a pleasure for me to present the numbers for Bilfinger for the first time. I started off December the 1st. I don't think it's the best time for a CFO to start off. You come in and you feel that you would like to change one or another thing, but you can't really change much going into the past year. I was focusing on the cash side because that was where we saw at the end of November here we need to strengthen whatever we can in December to improve it. I will come back to the good and the bad sides of me also pushing the cash in December. Let us start off on the order book side. I think here we exceeded the expectations.
As Tom was saying, we closed 2018 having a 10% increase versus last year, organically even above 12%, so 12.5%, extremely good and also motivating now going into 2019, having a very solid base load for 2019 and a lot of the work that we need for 2019 already in our books. Especially worth mentioning that we had a strong order intake from both sides, from both our segments, but especially on the E&T side coming in. Book-to-bill, we closed the year 2018 with 1.1, our order backlog at the end of 2018 was 11%, 12% organic. A very good start of the new year 2019 then. If we look at the revenue side, we also here managed to achieve the expectation of the 5% increase in revenue year-by-year. We even organically closed at 5.7%, so very strong performance.
On the EBITDA side, we closed the adjusted EBITDA at EUR 65 million, 1.6% margin, which was a good step forward. As mentioned by Tom, the last quarter, which belongs to the strongest ones year by year as we have some seasonality, was also very good performance with 3.3% profitability adjusted EBITDA, slightly below what we had in the quarter, the same quarter 2017. However, in 2017, we had some projects that were closed and generated, I wouldn't say a special profit, but an upside in the very end of these projects. Looking at the reported EBITDA, we are closing at minus seven, so we have EUR 72 million special items or adjustments included here. That is to compare with previous year where we had EUR 121 million as adjustments. We are going in the right direction here clearly.
Most of these items are continued to be related to the sale of some of our legal entities. The effect of that, we are showing it here, EUR 17 million. The rest related to compliance to IT system that we are rolling out over the last years and also restructuring cost. Obviously, it's a clear target here to reduce this amount year by year to get closer between the adjusted and the reported EBITDA. A big step forward here. We continue to look into the two main areas on the cost side. We are looking into the gross profit, where we, in our Strategy 2020, have said that we would like to improve our gross profit with 2%. We managed to close with a margin level in 2018 of 9.4%. Previous year, we had 8.4%. 1% improvement, which is good.
We also have to be honest and say that this is an area where we will need to get more out of this going forward in the next two years. That's a lot of the focus for our COO, Duncan Hall, to make sure that we are getting more out of the existing contracts and projects that we have. Here, we haven't made the progress that we would like to, but there is more to come, and I think there are a lot of activities in many of our entities to improve this. This is obviously a combination of executing what we have in the order books in a better and more solid way, looking for more profit on these contracts, but also to pick the development areas that are more attractive.
Those that are generating growth, but also those that are generating a stronger margin than the average here. We will hear more about that from Tom in a minute. It's a combination of this, and obviously also, as we have a strong order intake, to, in some cases, also train our people to get a bit more picky when they are taking up new contracts, to be more selective. It's nice to be in the position that you can allow yourself to do that. Looking into the next area beside the gross profit, we are also looking at the SG&A, where we have said in our strategy that we want to get 3% EBITDA improvement out of this. Looking what we managed to perform in 2018, from an absolute number, we are at the same level.
We need to keep in mind that we had a growth, we did not increase our SG&A with anything due to the growth. We also had, if we compare year by year, in 2018, EUR 20 million included for further business development and Bilfinger Digital Next. We managed to do more out of this money. This is an area that I will focus on a lot going forward, because I definitely see that there is potential to get more out of this. If I remember from the strategy that was presented in 2017, we would like to get down to the level of 7.5%, there is at least another percent to get out of this. Looking into the two areas. Starting with E&T, which made a good progress last year in regard of getting order intake up, increasing the order books.
We are talking about an organic increase in orders received of 34%, and we are talking about 33% organically in the order backlog. Also, on the revenue side last year, we had an organic growth of 8%, significant contribution from North America. Also in regard of the margin, we were then ending up at a level of 2.2% in the adjusted EBITDA here. I think, a good step forward, and we will also compare this, obviously, when we are coming to the point later on the new changes to our organizational structure. Looking into the larger segment, which would be the MMO. Here, we had an increase in the order books of organically of 9%, order backlog with 6%, and the revenue also with 6%.
EBITDA adjusted margin, we closed at 4%, and we had, especially here, a very strong performance coming from the region northwest, that Duncan Hall just left at the end of 2018. Very strong performance, and especially in the last quarter, this division performed extremely well. Last but not least, to make the calculation work, we also have the area OOP. Here, a lot is legacy. The legacy is getting less and less, which means that 13 legal entities have now been disposed or terminated until the end of 2018. We have four left that we hopefully will be able also to close in 2019. Two of them have already been solved in the sense that one is signed and one is closed. We are quite hopeful that this work will be finalized until the end of 2019. We also have the performance of these entities here.
Here you see, obviously, that getting less and less entity into this division. You see that we are moving down on the profitability, but also on the revenue line and order books. The profitability was a little bit burden here this year and not improving because we have one legal entity that belongs to the remaining four this year, which has not performed very well, and that is South Africa. That is a structural problem in the utility business in South Africa, and it will be solved, we hope, until the end of 2019, as we are trying to sell off this entity. Going into cash and the cash generation. We have also here a strong performance, a lot related to the last quarter. The voice was heard in December. We need to get more cash.
Some did it in the right way, worked a lot in December also on reducing the Work in Progress and the DSO. Some of our divisions, however, also took a part of that improvement by using the suppliers a bit more than they had before. We have an improvement if we look at quarter three versus quarter four on the DSO side. If we look at comparing 2017 to 2018, we are more or less at the similar level, and we are, of course, here in the DSO, including also the prepayments and also the WIP. It is not only the accounts receivable. This is also something that I am sure that we can further improve our developments on the DSO, and get more cash out of the working capital.
As we are showing also on this slide, you see the development of the accounts payables and also here in December, we had more accounts payable hold back at the end of December. It is a combination. If we look at the development of the cash flow, you see it on the left hand on the corner, you see the improvement, the adjusted operational cash flow moving up to EUR 110 compared to previous year with - EUR 7, which is a step in the right direction, but also here, more to come and more to get. The cash side, extremely important, improving this further quarter by quarter as we proceed in 2019. If we look at the reported and the adjusted net profit, we see the reported numbers -EUR 24, previous year, -EUR 89. Adjusted net profit moving up to EUR 36 versus -EUR 9 last year.
The free cash flow, almost to reach break even. We ended up at - EUR 4. Last but not least, looking into activities that will bring us further improvement. Nothing new here. It is ongoing, and we have benefited from these activities already. There is also more to come. We have the IT projects. Most important part here is the harmonized, standardized ERP system that we started to roll out in 2017. We have by now, by the end of 2018, a degree of completion of around 40%, targeting to get to 70% by the end of this year. Extremely important to also reduce our cost, but also to improve the transparency.
We have seen in those entities that have the implementation that, for example, transparency on the working capital has improved a lot and helped us also to, in reality, get the cash in earlier or get more cash in. Looking on the procurement side, continuous improvement here. We see increasing number of e-auctions. We are also trying to bundle the procurement more and more. Bigger is better in the sense of better pricing, we will continue to drive this a lot on the operational side. In some cases, we are obviously also buying for our clients. This is an area where we also, with the increasing activity, need to get more margin out. Merger of operating units.
Since 2016, there has been a strong drive to reduce the number of legal entities to reduce complexity in the Bilfinger Group, but also to, of course, make savings in getting less units with a more clear and larger size, all to make sure that we have a good offering to our clients, but also on the HR side, to make sure that we are able to be attractive for managers that would like to join us. Having a clearer, bigger size, it will make it easier for them to also drive the business. As you can see on the right-hand side at the bottom, we started off in March 2016 with 279 legal entities. We were, at the end of 2018, down to 168, but the drive down will continue.
One very good example that just went live is Austria, where five legal entities at the beginning of 2019 were merged into one, which gives us a completely different size in the Austrian market, but also helps us then, of course, to be more efficient in all our processes. This work will continue, and these activities here and initiatives will continue through 2019, 2020 as fast as possible to also support the development and the turnaround of Bilfinger. I would like to pass back to Tom.
Thank you, Christina. It's my pleasure to share with you a little bit more insight into the way forward. We stick to our strategy, we say that at the outset, two, four, six. We did take the opportunity in 2018 to look a little bit deeper into a number of companies. If you recall our initial slide in February 2017, two years ago, it's really the detail on the left there. At that time, we said that we spent quite a lot of time going deep into the company, analyzing. We shared with you what we found and our way forward, in other words, the roadmap of Strategy 2020. That allowed us to work on the biggest areas, more significant areas first, with a sense of priority.
As they became under control, and we exited the stabilization phase that we talked about early last year, we then said, "Okay, now let's go to the next level of detail or granularity," if you like. We began to select certain entities. We, this time, took outside help. We didn't do that when we created the strategy. We then dispatched teams to key entities around the Bilfinger world to look a little bit deeper. We didn't always like what we found, but it certainly gave us a lot more clarity and granularity, and, as a consequence, we were able to set targets for those companies that will take them from where they are to where we think they should be by 2020 and beyond.
Not all of those companies were happy with our approach. Numbers speak for themselves, and they were hard to argue with. One of the other things we discovered in digging a lot deeper is that we're very customer friendly, which is nice. We're finding that if the employees had to choose between customer and Bilfinger, they often chose customer. Which, of course, you tell to the customer when you're in front of them. You don't tell to the board when you're trying to explain your results. I'll give you an example. In Germany, we have well over 1,300 customers in maintenance alone. Several hundred of those customers have annual revenues of less than 1,500 EUR. Annual revenue less than 1,500 EUR. It's obvious what you do.
You say, "Okay, that's very nice." The maintenance cost just of writing invoices, we made that analysis in 2017. It costs us 12 EUR to write an invoice. You do that 12x a year, 144. Not much of your profit on 1,500 EUR is left. In fact, it's quite negative. We're using our backlog momentum to be more selective on customers, or to use a financial technical term, I believe picky is the right word. These plans that we developed with these key entities, they're not just, you're here. You should be there. They're execution plans, the way that you've got to know us. We use BTOP for that. We set degrees of implementation. We follow through very rigorously to make sure that the delivery goes all the way to the bottom line.
That's new for some of our colleagues. It was highly necessary. We looked also at our projects and our products. One of the things we did like is that we have high margin, high growth opportunities around three areas, biopharma and pharma, around energy, which is mainly nuclear and emissions around the scrubbers opportunity. We have opportunities around digitization and automation. All of those areas are growth areas within Bilfinger. They're not only growing at a double-digit rate, they also deliver higher, significantly higher than average margins. Some of them, especially scrubbers, also deliver good upfront cash payments. We wanted to get more focus on that group. This is part of the story leading up to why we did some fine-tuning in our structure. I mentioned what we found in block one in the procedure in deep dives.
Not all of our managers survived those deep dives. In the last two years, Michael and I and Klaus, of 200 top managers, we changed out 70, 35%. Of those 70, 35 were internal promotions, one of whom is sitting on the left. 35 were additional expertise we brought in from the outside. Of course, bringing in outsiders is always good because they bring new ideas. They challenge the status quo. We term it management upgrades, I guess in English it would be the other definition of change management. Very necessary. We continue to do so. We added to business development. We mentioned that at the outset of last year that we invested in expertise in each of the six focus verticals we have, the six industries. It's an additional cost.
I think you'll agree that our momentum, our development, and growth on the order intake line justifies that. It's the right thing to do, and going forward, we're going to be doing that even more. Finally, to support the execution phase of what I've just described in the other two blocks, we decided it was time to appoint a Chief Operating Officer. When I say we, this is something that Michael, myself, the board talked about for a while, and we're very happy to find an insider. I think after Duncan's given his presentation, you'll agree why. Finally, on our structure, what we've put in place is very strong governance, especially around project management.
We've talked a lot about that in 2017 and 2018, we're never going to give up talking about it because delivering project execution excellence is a key part to our story. We're doing it. We expect to be able to continue to do so, therefore, that's an essential ingredient that a company like Bilfinger just cannot do without. It's an imperative. We've been consolidating in country. Christina mentioned that. We have a good example in Austria. We're looking at other countries where it's not just a question of saving SG&A costs, because obviously if you have five companies merging into one, you only have one set of books to attest at the end of the year to put through the audit partners. What it does give you is a much stronger management team.
Five companies doing EUR 60 million a year is very different than one company doing EUR 300 million. As we consolidate those companies, we will put in place newer and stronger management, again, to drive our plan going forward. Something else I liked, which we began in 2018 and continued to take forward, is working in teams. We are working in teams to generate integrated projects. Duncan will touch on one of those. Also, we work in teams cross-border. What does that mean? We formed a Bilfinger turnaround concept. This is driven mainly by our teams in Germany and in Austria. These teams work throughout Europe, so they are based in Germany and Austria, but they will equally work in the Netherlands, they work in Scandinavia, we work very closely with our customers so we can actually dovetail, do end-to-end planning.
Already today, our order book is full for 2019 for turnarounds. It's almost full for 2020. The first customers have already secured our teams for 2021. I think what I've described there is a continuing strengthening our sense of purpose, it's something that we will drive forward what we committed to, but in a very tangible, measurable, and quantifiable way. Not just, we're here, we want to get there, not sure how to do it. We know what we're doing. As I mentioned, we haven't gone away or detracted from our strategy, our 2-4-6 strategy. It's nice to be able to explain that left to right or right to left, our industries, our regions, our service lines. What we have done is we put the technologies part, these are the producing companies I just described.
We put them into one basket, we now call that service line technology. We took the engineering part out and moved it into maintenance. As such, essentially it is EMC. We have moved the E and the C into the M. Let me show you why we did that. This is a slide I actually used internally when the colleagues asked the same question. What you are looking at here is our European engineering resources. You recall that we have a number of companies, the largest of which is called Tebodin, based in Holland. Tebodin focuses on the European market, but of course, one of their strong customers was NAM, the oil and gas company, JV, Shell, Exxon. NAM, as you probably have read, scaled back their production significantly because of so-called mini earthquakes under the ground on account of fracking in the Groningen gas field.
We have a changing business there. The PMC work, the project management consulting work that Tebodin was focusing on, has actually began to shrink from 2017 to 2018. You see here that the proportion of the other side of our engineering, that is the maintenance and modification engineering, is increasing. The order intake, it has gone from being 26% of our 2017 orders to 30% in 2018. Mainly because it is growing, not because the other one is shrinking. The revenue, even a stronger position, I think the one that is really telling is the last one, that is gross profit. 32% of our gross profits in engineering came from modifications in 2017. That grew to 41% in 2018.
On a year-for-year basis, you will see bottom right-hand corner there that the change in gross margin was roughly 2.5%, 250 basis points in modifications, it deteriorated by almost the same amount in project management consulting. We dive down very deeply, that is the message of this chart, we take action. The action was that we are going to get more bang for our buck, again, to use a technical term, by moving this business into the maintenance area, having it work closer with our modifications team, and essentially giving the customer an end-to-end solution. We can engineer the modification, we can execute it. That is what many of our competitors do. They call it EMC. We chose the title modification, sorry, engineering and maintenance just to keep it short, or E&M is our new abbreviation.
Going forward, I know it is not easy because you have to jiggle your spreadsheets, I apologize for that, it is the right thing to do for the business. Effective January the 1st, as I said, we have taken two service lines. We took the engineering out of E&T, moved it into maintenance, so that became E&M. When you look then backwards at what would those service lines have yielded in terms of EBITDA in 2018, I think it is quite a telling picture. On the left, let us get the bad news out the way first. Just shy of EUR 500 million in revenue. A negative adjusted EBITDA of EUR 24. I think that tells the story. Engineering is profitable, when it slides over, it makes the right-hand side look very attractive.
However, we did that not because we like to beat ourselves with negative numbers, but we said we've got to focus on the producing element. This part of the company produces package units, modules. The reason why the numbers are negative, there are two primary reasons. One is the fact that we have overcapacity in E&T. E&T is the entity that would ultimately service Hinkley Point. It's the entity that does work on Olkiluoto. That overcapacity we kept intentionally as the customer kept delaying the Hinkley Point project. That has a consequence. We did reduce headcount to some extent, but we kept a core team in place, and we knowingly went through the year with underutilization, overcapacity, if you like, and negative numbers. That will change in 2019. The other major component of this is a company working in France where we had a lot of management change.
Some of it was intentional, some of it's not expected, and we've now put in place new management. That company turned in a loss, and it will be turning in a profit in 2019. The other elements are solid. Some of you have followed our development in biopharma, going great. Automation around the digitalization theme, also going well. What we also did was change the management in this division. They're part of the 70 that I mentioned. Michael stepped in to be a placeholder and interim manager. We have a shortlist now, and we'll be putting a manager entity end of Q1, maybe beginning Q2. That manager, of course, then reports to Duncan in his capacity as Chief Operating Officer. On the right, we have our four regions, in the service line, engineering and maintenance. In 2018, they would have added up to just under EUR 3.5 billion.
Good EBITDA of EUR 133 million. As we go forward, of course, we will repurpose more of the engineering to maintenance. We will drive the margins. We will deliver on the improvements we talked about. We will also have a good year in 2019, 2020, and probably in 2021 in turnarounds. I think also there it's the right thing to do. Again, through merging of entities, we're able to reduce SG&A and put in place stronger management to again take the business forward. I would pause there and hand it over to Duncan, who's going to show you how some of these things hit the bottom line.
Great. Thank you very much. Thank you, my colleagues. Other than improving the margin and giving a sparkling presentation now, I feel no pressure at all. Thanks very much for that. Good afternoon, everybody. Could I also just say good morning, good afternoon, and good evening to all of our employees who hopefully are watching this today, and hope you're having a safe day. Just a bit of background before I get into the main bulk of the presentation about myself. I've been with Bilfinger for 12 years. Worked mainly in the industrial services line, and looked after Northwest Europe for the latter years. I've been here throughout quite a journey, as I'm sure some of you have as well. I was speaking earlier to one of you about an analogy about a train. I was here before the train entered the tunnel.
I was here when the light at the end of the tunnel was a pinprick. Now the light has come really into focus, and we are nearly out of the tunnel. We are nearly back into the light. Confidence is back in the business. Delivery is there, orders are up, profit is back. Our people are confident again, and we will deliver the future. Let me tell you how we do it, because this is where we make the money. Yeah. This is what we do. This is how I'm going to try and help make a difference with the rest of the team, the 35,000 people that we have working for us. What do we do? We make incremental margin improvement. The bulk of our business is framework contracts, Engineering and Maintenance.
We've been working on these sites for 25 years, some of them 75 years. Yeah. We know what we're doing, and we can gradually improve performance year on year on year. That's what it's about in E&M. In the project area, as Tom Blades talked about, it's about project delivery, and we've really strengthened our governance. We go into the right projects, we make the right choices at the right time. We manage the risk as we go in, and when we're executing, we do short interval project management. We see the weak signals. Strong signals, we've lost money or a waste of time. We've got to see the weak ones before it happens, and that's what we're getting good at. North America especially, they are really moving forward in seeing those weak signals. It's a very positive environment.
We're going to look at a little bit more about what we're going to do in the future and higher margin work, where we're securing better portfolios both in E&M and in Technologies. The Technology area has really moved on quickly, and that's also part of why we have the separation, so we can really see those products and we can engineer those products correctly and get them out to the markets because it is a little bit different from E&M. We talked a little bit about cross-border, and this is where Bilfinger is quite unique. We work right across the world. We've got our four regions, Middle East, North America, the two in Europe, Northwest Europe and Central Europe. That's quite unique.
We can go with customers to various parts of the world and deliver the same services in the same areas and build on those strengths and reduce the risks for ourselves and those customers. Very important we both reduce risk. It's a mutual journey that we're going through. As Christina was talking about, we've got to get more efficient on SG&A, and that's throughout the whole loop. Yeah. From start to finish in headquarters and in our operations. There's more to go at there. That sense of purpose that we do things for a reason, we do things for a purpose, which is to create money, is coming back into Bilfinger, and that is what we're going to carry on doing more of. What's most important for us? Safety.
There are people out there saying we'll have been surprised it took me so long to get onto talking about safety, but operations is all about safety. It is why we win work. We have to be world-class. We are world-class. We have to continue to be excellent. We don't work for Shell, we don't work for Exxon, we don't work for EDF without being safe, and that's what we need to continue to be. Alongside very compliant culture, which helps in our discipline around project management as well, the compliance journey we've been on. Let's get into some examples, if I can get it going. There we go. Just going to pick on some examples in technologies and then into E&M, and then some other areas we've done. Tom's talked about some of these, so I'll only focus on certain areas.
The scrubbers, what's the background to it? There's legislation in around reducing emissions that comes into play in 2020, middle of 2020. We've got a good order book approaching there. We'll have a lot of retrofits coming up to that, where we need to get it on the old ships, and then after that, we're going to concentrate on the new build market, which is a nice consistent theme coming through. There will be an increase, then it will steady down into a nice steady level about that. We've got proven technology which we transferred actually from our old desulfurization on power plants over into ships, which is great. For customers, it's actually very good. It's quite a short payback against using expensive fuel over to the scrubber systems. What are we doing? We've been quite cautious.
We've got a good order book, EUR 100 million, 70 ships, and there's more options there, and we could already accept more orders. We've got to get our production right. Ships come into a dry dock. You've got to be there, you've got to get the scrubbers on. You have a two-week window. You sail out with it to commission it. If we're not ready, there's liquidated damages. We are going to make sure our production is right before we start increasing our order book. We will. We'll be doing that to reduce costs as well, we'll be doing it in different areas across the world and where the ships come into dry dock into China more often. That's one area, good high margin work, a seller's market.
Pharma and biopharma, an increase in market there that we see throughout with what's happening across the world with society and the products that are going in there. It's a global market with global players, they buy on a global basis as well. We supply on a global basis. Our facilities that we produce are the production units, the skids. We make a lot of them in Austria, and then we ship them around the world. We've just got orders in China, we've got orders in Russia. We are already the number one pharma and biopharma maintenance and technology provider within Europe. 20, roughly 20% revenue growth over the last four years. A good, strong platform to continue to grow. We'll look at how we can take that onto a wider basis because there's, again, very good margin within those areas. Nuclear, Tom talked about it.
In Germany, it's a different outlook. Across the world, there's a program on average for the next 20 years of 25 reactors being in construction at any one time. For the next 20 years. There's still 450, roughly, in the U.S. and Europe that require maintenance, that require retrofits and upgrades to extend their lives. This is an area we've worked in for many, many years with Babcock Noell, or E&T as it is now. Right now, there's three new builds in Europe, and we're on all of them. Hinkley Point, we've talked about that. We've been on that project now for getting on for 12 months. We've got 20-odd people already down there. Fronted by a U.K. business supported with E&T. We set up a special company to do that. This is where we see, again, combined strength. German know-how, U.K. delivery.
It's through a U.K. company into the U.K. That's the Brexit question out of the way. Thank you. And where are we at the moment in that? We will be getting that order sometime in 2019 as long as everything continues as it is. We've already been nominated as the strategic supplier for the SSS pipework within there. We have a letter of intent. It is just now a matter of we are agreeing the scope that we do with that and how much other work we may do in that area as well. But not only do we do the Hinkley Point, we also do engineering for Framatome. Peter's business has been working in there for many, many years. We do decommissioning, and we do handling systems as well. It isn't just the specialist pipework that we do.
We do a variety of elements within that, and we wouldn't be winning that work if we weren't safe, if we weren't giving high quality, and we weren't delivering on time, because you cannot get away with that in the nuclear industry. That's what we do. Let's talk a bit about engineering and maintenance. The Fluxys project, a EUR 36 million project. Very good example. This is about odorization, deodorization of gas, about when you take gas cross-border from Germany, you take in odors and take out odors because of the different legislation that you have in different countries. We've got very, very good technology in that and very good experience in gas.
We brought together here four companies from Bilfinger: the engineering people, the fabrication people, the installation people, two installation company, to bring that together and deliver it. A few years ago, we probably wouldn't have done that. We're working together because we are far better family, far better cooperation, and approaching this one Bilfinger mentality where one plus one equals far more than two, because that's what, again, we need to do to grow. Tom already touched upon the Bilfinger turnaround concept. It is my background, and a lot of our colleagues work in this, and this is one thing we can transfer across. It's the biggest single risk for the bulk of our customers every year. We'll be doing the largest turnaround in Europe at Shell Moerdijk, which will be starting later on this year, and we'll have 700, 800 people on that turnaround.
We need to deliver. The profitability of that site is exceptionally good. It's shut down for five to six weeks. I can tell you exactly when we finish the schedule. If we do not deliver that with the customer on time, their profitability is hit. They rely on us, and they've relied on us on that site for 25 years to do that with them. Yeah. Because we're reliable, we're safe. That's what we're going to deliver again. One of the other areas, corrosion under insulation. We do a lot of insulation. We do a lot of scaffold. It's a big part of our business. It's a profitable part of our business. This particular area where you get scabbing, corrosion under the insulation of pipework, especially on oil rigs and in the petrochemical refineries. This accounts for 60% of the hydrocarbon leaks across the world.
When we have big process safety issues, this has caused a lot of that. This is why there's an investment program across the U.S. and Europe where you've got about 250 refineries of about $2 billion. We're getting access to that market because we've got all the services able to bring that together and do it very efficiently and save the customer between 60% and 75% of their cost through putting rope access technician teams together. We'll have a rope access inspector do an NDT, we'll have an insulator, and we'll have a painter and blaster all in one team working off ropes. So they'll go, they'll do the inspection without taking the insulation off.
If we find a problem, we'll take the insulation off there and then, and we'll correct the problem, find and fix, and it removes a massive amount of the cost. You don't have to put up scaffold. You don't have to go back, get other people in, and do different elements. This is providing real value and hence we can do more and more and more, save the customer money and give them our higher value services. We're shifting it around, which is what we need to do, provide these solutions to customers to deliver higher margin services. The last one I've got is People may not remember. This was one I showed, I can't remember whether it was back in October 2017 or whenever it was. I thought we were at a worse time, but whatever. This was a contract we did.
Not all contracts start off brilliantly. We won this contract on an offshore rig. Just checking there's nothing there. Back in January 2017. It didn't start off very well. Yet it was at the time, the market was tight. Our Norwegian business needed to win work, and we went in a bit tight. We worked very hard to bring it back. I remember we talked about here, and we started to bring that back. We maintained this profitability throughout, and now this contract is very profitable. How did this happen? Measuring our performance. Here, this is all about the norms, so how quickly we do work. That's how we get paid on the bulk of our contracts. Yeah, we get paid for what we do, not how long it takes. We've got to drive that efficiency. Yeah. Our people, it's a lovely day today.
Our people are out there working when it's raining. They're turning up at 5:00 A.M. They're walking down to the site. They're getting wet through. They're getting changed. They're getting out there. They're getting briefed for their work. They're getting their permit. They're going to the job site. They're checking their PPE. They're doing their last-minute risk assessment, and then they're starting and delivering work. That is our lives. That's what we do well, that's what we look at making more and more efficient. It's getting down to this incremental level of that bit of performance improvement every day that we can do to make a turnaround like this. This was done with only Bilfinger people. No consultants, just Bilfinger people because we're the experts in delivering this in production improvement, productivity improvement.
At the end of that now, how are we going to go forward on this? A lot of what I do is about what we do as strategy and transferring that to how we deliver it in the field because that's the key. What we do, we've been doing it right. We need to get better at converting that how. How we do that in North America can be very different to how we do it in the Middle East or how we do it in Central Europe or Northwest Europe and on different sites. That's what I need to do with my people, that we're working together as a team and doing this better and better and better. What do we do to make sure we're doing it well? We measure it. The facts don't lie.
Measure it, put a plan in place to improve it, deliver that plan, then go back and check it and check it and check it and check it because the facts don't lie. That's how we move it on. Behind that as well, we've got a very good product portfolio now. We've got high margin services, we've got high margin products that we're bringing through to the customers with a good order book behind that to deliver it. From a delivery perspective, from what's happening out there, where we're earning the money, we've got a very positive environment. We're a safe business. We've got all the tools and techniques to deliver efficiently, we manage our risks and get ahead of them by looking for those weak signals. That's what we need to do. With that, I'll finish. Tom?
Good job.
Thank you.
Over to you. Thank you, Duncan. It's up to me to try to round up with a look ahead and how we're going to do in 2019 and beyond. It's interesting because from the beginning of the year, already at the end of last year, but certainly the beginning of this year, we've done quite a lot of conferences, and we're always asked, "Do you see shakiness in your industries, in your customers?" The answer is no. No, we don't. Why is that? Well, our three key industries are oil and gas, chemicals and petrochem, and energy and utilities. They make up, as you recall, 80% of our revenue. All of these are right now very robust. They're long cycles, they're late cycles.
Yeah.
If something were to materialize, we would get plenty of warning, and then, of course, we would have to adapt and adjust. That's not the case. If we go very briefly through our four regions, you recall that Northwest Europe on the bottom, this is mainly the activity around the North Sea. U.K. one side, Norway, Scandinavia on the other, and then Holland in the south. The northern part, Continental Europe, is therefore mainly about downstream oil and gas. Here we see people investing in maintenance and field life extensions. Investments are sunk and assets are run for cash flow. We see upgrades along the European gas network, and the gas network, you follow it the same way everyone else does, is in some cases aging, in some cases being expanded.
Nord Stream comes into Lubmin, it has to go on to the rest of Germany. LNG plants are being talked about, not in terms of liquefying the gas, but in regassing the liquid. We expect this year and next year there'll be an announcement to one of the three locations, and then again, gas infrastructure comes into play to bring that imported gas into the structure. We think oil and gas, Continental Europe, is mainly around infrastructure, and we're well positioned. I think the Fluxys project is evidence of that. In chemicals and petrochemicals, our customers are doing well. I would say ammonium fertilizer is the weak area, but all other chemicals, specialty chemicals, base chemicals, these are good business lines, and the customers are continuing to put money into their plants to drive performance and productivity.
There's not so much expansion, at least in Continental Europe as we know it, but people are investing their money and driving performance. Energy and utilities. Germany is interesting. You read about the coal-fired power stations that will be turned off. They produce not only electricity or energy, but also they produce hot water. The combined heating, as it's called, then leaves consumers without a source of hot water. That's where district heating comes in, these are projects that are well within the scope of Bilfinger within the BET organization that we mentioned. We're actually executing a project in Mannheim where we do exactly that. We replace the warm water from the coal-fired power station that's being shut down with a separate generation process that then delivers heating to the homes around Mannheim.
I think on the far right, pharma and biopharma, I've talked a lot about this is a good business. We're taking it to China. We're opening our office in Guangzhou to support business there. I think you will also have read our first move into Russia, where we've sold quite a large skid towards building a new biopharma plant in Russia itself. Northwest Europe, North Sea, this is the oil and gas part of Bilfinger. Again, we're asked often, because the people see a very strong correlation of our share price to the oil price, "How much of your business is actually true oil and gas related?" It's around 15% on the upstream side, maybe another 5% downstream. We're at 20%, maybe a little bit more, depending on the seasonality and on the cycles. Here, definitely it's our upstream business.
The North Sea is good. Customers are making money. Last year, oil and gas customers typically budgeted for an oil price for around $45- $50. That's the same this year. These customers are not changing their plans when the price of oil moves from $65 to $55 and back to $60. They just record a high windfall profit, and I think you saw that in the numbers from Shell and BP just a few days ago. Chemicals and petrochemicals, all the downstream business is also prevalent in Northwest Europe. This is the metropole, if you like, the chemical metropole between Antwerp and Rotterdam. That is actually the third largest chemical complex in the world. Number one is in China, Number two is in Houston, Number three is in Antwerp, Rotterdam.
You will have read that INEOS is investing there beginning 2019, a $3 billion investment to build out a new facility there. There are things happening even in mature markets. Hinkley Point, Duncan touched on it, I won't dwell on that. We're there. We're working there. Our people are inside the customer's organization. We're working on our project on an hourly basis, which is very nice because that's guaranteed profits. As we go forward, we will sign the larger contract. It's going to be EUR 250 million. It was supposed to be last year. The customer changed some structures. They asked us to be patient. They gave us a time and material contract, somewhere this year, we will sign that contract and then record a one-off lumpy order, that will turn into revenue over successive years. Again, it gives us strength, visibility and improving margins.
If I jump to what we call the developing or international, because the other two there I just reported on were Europe. In North America, things are also good. In North America, we have a strong C component, the EMC, engineering, modifications, and construction. Our business in North America is very construction heavy, but it's constructing mainly in the midstream. What is midstream? Oil and gas comes out of the ground at the well site. It's got to get to the refinery. Midstream is all the technology gets it there. It can be pipelines, it can be LNG, but it can also be cryo units. A cryo unit is the refrigeration process where gas comes out.
Through refrigeration, you separate the liquid component from the dry component. That liquid component is what then goes into the crackers to create base chemicals, polyolefins, polypropylene, and so on and so forth. That is a good business. A lot of investments are still yet to come in Texas and Louisiana. We were there with the press a couple of weeks ago. People talk of a $200 billion investment, dollars not euros, but it's probably very similar, of which only $80 have been made so far. Another $100 billion to go. We like that. Even a small part of that is a lot of money. We think we're in the right place at the right time. In the Middle East, oil and gas companies are picking up. The national oil companies, the NOCs, are investing again. Not only are they investing, they're making announcements.
You know the mentality there. They don't announce unless they intend to do it. We've seen really good opportunity in Abu Dhabi. We've been working with ADNOC for a long time. They want to invest in the build-out of their refinery in Ruwais. They talk of a number of EUR 42 billion. What it's going to be at the end of the day is something close to that, but it's going to be big. We're already there working with ADNOC in Ruwais, so we're ideally placed. They've also mentioned increasing their oil production. The OPEC, non-OPEC play continues. At the end of the day, depletion, reducing pressures, drives the need to replace reserves. We're not talking about increasing production, but merely replacing what has disappeared during the course of a year.
There, their aspirations have gone from the 3 million barrels a day to 5 million barrels a day. It's another $120 billion required to do that. Money is flowing, and why? Again, they're making a lot of cash, even at oil prices in the range of $55 to $60. I think we're in good markets. We are in robust markets. We have solid customers. Although we can read about recession and in other industries, we don't feel that, and we don't feel it yet, okay? We don't feel it in 2019 either. That might change. We're confident, and that confidence allows us to then stick our neck out just a little bit, not too far. The numbers you're familiar with right now. In 2019, we think we can continue to grow.
We've got good backlog, a 12% increase in backlog year-over-year. We still expect to be a book-to-bill greater than one. There may be some quarters where it dips because we're showing some very good track records. Overall, we expect mid to single-digit organic growth in 2019 over 2018. Our EBITDA will grow also for all the reasons you've heard. We're driving performance. We're driving productivity. We continue to take down SG&A, and therefore we set ourselves, if you like, a baseline at EUR 100 million EBITDA. We're going to do better than that. A significant increase to more than EUR 100 million EBITDA adjusted. Finally, free cash flow. It's reported now, not adjusted. We were close to break even in 2018. I'm glad we weren't in some ways because we want to put that checkmark next year. Of course, free cash flow is important.
It's what drives the business, and I think it's also, I think, the number one priority of Christina, as you heard during her presentation. We have good momentum. We see ourselves going forward, and there's no reason why we should retract or change our aspirations that we shared with you in 2017 with the Bilfinger 2020 Strategy. We said at the time, it's a long way. It's hard work, and yes, definitely is hard work. I think the whole team is nodding. We set ourselves many small successes along the way. That's important to record these successes. In Q4, we added one more green tick mark on the adjusted free cash flow positive latest in 2018. We deliver. We haven't changed this slide to meet our results. Going forward, I think you've seen our aspirations.
We're on track, and we will do that. The refinancing, that will happen very soon. Of course, the refinancing is going to be our target, our next check mark. The cash flow development obviously helps in that regard. We did make one adjustment in our slides. Again, this is an old slide from 2017. We said taking 2017 as the base year, we would grow the top line 5% CAGR. Check mark, we're on track. Good book-to-bill, good order intake, and a strong development in the backlog. We said that we would increase profit from a zero, effectively, in 2017 to an adjusted EBITDA of roughly 5%, of which 2% or 200 basis points would come out of gross margin, 300 out of SG&A. You've seen we're well on the way.
Going forward, if you ask me what is my measure of success going forward, and I think Duncan's too, it's driving that gross margin now, driving it forward through all the things that we discussed here. Not only performance, but also the fact that we have good products with higher margins where the market is demanding those products. We have to execute, deliver on time, and then make sure those higher gross margins come all the way through to the EBITDA line. On the cash side, I think we've said enough. I'm sorry, I should add one more point. I said we added a line here. It's including portfolio rotation. What is that? Something we began talking about at the end of last year, and you recall my slide where I talked about the analysis.
When we went deeper into companies that were, in our view, underperforming, we found improvements, we found fixes, we set timelines and actions and dates and people. Even then, they will only get as good as their peer group. We don't see them going above a 3%-4% EBITDA. For that reason, we said, once we've got them to what we think is a good benchmark, a peer group comparison, we will then sell them. From the proceeds, we will buy other companies that do fit our margin profile. That is why we did introduce here on the profit box, it's the only line I assure you can go back to 2017 and check. It's the only line where we said we now include portfolio rotation, and that's going to be small things.
It's not game changers, we do want to spend the money we get from selling the accretive entities, the four that Christina mentioned, and a few other fine tuning in our portfolio. Okay, cash we talked about, return we talked about. I think we're on track. We showed in 2017 that we've turned around the top line. Inflection point achieved, orders taken in, revenue taken in. In 2018, we have the inflection point on EBITDA and on cash flow. As I mentioned, a solid backlog going into 2020. We're confident. We think we're able to deliver, and we think we will meet our 2020 ambitions. With that, I would say thank you, pass it back to Bettina, and I guess open the floor.
Yes, thank you very much. We now start our Q&A session. For those in the webcast, you can put your question via the chat function, and I will read out loud later on when we're done within the room. We start with questions in the room. First question, Christian Koch, HSBC, then Norbert Kretlow.
Thank you very much also for the delightful presentation. I have a couple of questions with regards to some of the points you already spoke about. The first one is on the scrubber capacity and the technology that you have. Can you talk a little bit about your annual capacity that you have in there? Then I'm also very much interested in one of the smaller parts where you said you have EUR 100 million orders on 70 ships. Is that the goal or is that what you currently already have? Secondly, can you elaborate a little bit on your refinancing plans going into the year 2019 with the bond expiring? Then the last point would be any status on Apleona. Where are we in the process? The business was sold a couple of years ago. Private equity tends to hold onto these assets for some years.
Just if you could get us some idea if you have any conversation with the other owner. Thank you very much.
Well, thank you for the questions. I'll go with the easy one and then hand it over to Christina for the refinancing and also Apleona. In terms of scrubbers, it's an exciting market. As you followed, your own house writes a lot about it and reports. I think the views haven't changed. Between 5,000 and 10,000 ships need a change in approach. What does a change in approach mean? That either they pay the higher price for the low sulfur diesel, or they change out their engines from being diesel burning to being gas burning, they use LNG. We still have a very large market target. That's the demand side. On the supply side, we think the supply is between 1,200 to 1,500 scrubbers coming from about 12 companies. The larger ones delivering in the order of 300. The smaller ones, of course, tailing off on that.
Within that supply market, yes, we have orders in hand. Signed orders, delivery programs on 71 scrubbers, to be exact, and just a little over EUR 100 million in orders. What is our capacity? This has been an interesting challenge, but a positive one, where we also took in help from the automotive industry, converting project technology into a series and modular production technology. We began with the plan, and we still stick to that, to keep the engineering in-house, keep the commissioning in-house, and of course, the spare parts business after that, but to outsource fully the manufacturing. We began with a manufacturing partner in Mönchengladbach in North Germany, who initially said they could manage about 30 to 40 units a year. It was important to get them going. It was important to deploy quality managers to them.
We took on a second manufacturing partner, also with 30 to 40 per year, also in Germany, by the way. That gives us immediately 60 to 80 units. We then began manufacturing some key components ourselves, that lifts us up to close to 100. We've now been, I guess, auditing four companies in China, which will be the next step. That's a bigger step, but that step is necessary out of a number of reasons. One is that a lot of the shipyards that do the conversions or the modifications are in China. That's kind of obvious. Produce it close to the source where it's required. That gives us better visibility on delivery lead. Takes out the transport question mark. It also reduces our costs tremendously.
When you look at the numbers, it's hard to believe, but yes, we like numbers. Therefore, we think going forward, we can take the margins up quite a few notches, even if the pricing per unit goes down. That would then take us to well over 100 capacity. We're targeting something even larger than that. The capacity buildup is underway. Engineering is done, standard products are done, modular production is in place. I think we're on the right track to deliver exactly what we said. Christina?
Yeah. I take up the question first around the funding and the financing. Yes, it was a target last year in autumn before I started to refund Bilfinger. For various reasons, this was then postponed. The target is in the first half-year to find a solution for the refunding. In December, we need to repay EUR 500 million. We are here now planning to find a refunding of EUR 300 million. That's what we are targeting. Depending on the quality or depending on the price, we might also exceed EUR 300 million to be flexible going forward. EUR 300 million is what we're looking for. We are working hard right now in this process, different tools, different ways of getting EUR 300 million. I think, unfortunately, the bonding market has changed during the last six months quite a lot.
The documentation demands. Also, the interest coupon has changed significantly. We are well aware of the fact that whatever we now decide to do, we will not be able, of course, to be at the level of the present funding, which is 2.375%. We are well on our way and looking at different opportunities here. We are convinced that until the end of the first half-year, this issue will be solved. Coming to the questions around Apleona. Yes, I think given that there is a private equity company behind, at some point in time, you have to expect that there will be an exit. Presently, we have the preferred participation note, which has now been put in the books at the end of December at a value of EUR 237 million. It was an increase of EUR 26 million.
However, we have to say that this valuation we still regard to be a bit conservative, and it's also below what Apleona themself would judge. We also then have the vendor note, which is at a very good interest rate of 10%. We had now at the end of 2018, if we look at the value, the nominal value with the accrued interest, EUR 125 million. However, with the IFRS 9, it is then valued at EUR 117 million. I think both cases, these items are giving solid values in our balance sheet. Then of course, we need to continue to stay in touch with Apleona about what next steps they will take. Given the time frame that their ownership has been with a private equity company, I think we do not expect, or we haven't heard that there will be a significant change here.
Thank you.
Norbert
Two questions, if I may. The first one would be on the gross margin. In the presentation, we heard that you feel you're behind schedule here with regards to gross margin improvements in 2018. Maybe you can give us an idea about the quantity, and maybe you could also give us an idea about how to think how countermeasures should face into the gross margin over time, say, in the next couple of quarters. The second question would be on Hinkley Point. We heard a lot about this project before, and I wonder how big is the strategic importance for Bilfinger in Hinkley Point? Let's assume that there would be further delays. Let's assume that maybe we won't see any meaningful sales contributions in 2019, in particular 2020. Is there an idea you can give us about the potential impact on the P&L?
Again, thank you for very good and very deep questions. On the gross margin side, it's quite easy. We said we would get to a total of our target is 5% for 2020. You saw that we're at 1.6, so we know what we have ahead of us. We know that we want to drive another 1% out of SG&A. The rest has got to come out of gross margins. I think it's really just staying very dogmatically to our original plan. That's the key. Where would you be looking for improvements in that? Our two service lines, we report total Bilfinger, we report the two service lines, and then we drop down and we report the three segments. Bettina will be leading you through that more and full transparency.
I think the single biggest step forward you will expect to see, that I expect to see, and my colleagues too, is, of course, in turning the EBITDA of the technologies service line profitable. We think that one of the components of doing that, it's taking out the underperformance in one of the entities. It's the under capacity in E&T. There, definitely Hinkley Point comes in. Then, of course, delivering what I just described on the scrubbers. I think we know exactly what needs to be done. More than that, I would say stay tuned. It's going to be a good talking point in the coming quarters. We think it's in hand and we will deliver. Now, if Hinkley Point should delay beyond 2019 in terms of receiving the order, what does that mean for the project?
The project will be delayed, first of all. That's in the hands of EDF. It's not in our hands. If you were to visit Hinkley Point, it's just south of Bristol, on the Bristol Channel. It's a huge site. Today in the Financial Times, there was a good picture, I think, of Hinkley Point. If you haven't seen it, take a look. It gives you a real taste of the size of the project. It's GBP 15 billion initially. Maybe there'll be some inflation as these projects have. They're roughly GBP 6 billion into it. If there are delays, it's customer and the customer probably will end up losing quite significant money because these feed-in tariffs are, of course, tied very strictly to completion dates, and they then in turn translate into acceleration. Could something happen? Yes. Something could always happen.
If it does, are we going to fall over? No, we're not. We have other industries, we have other fields. Just like you saw, it didn't materialize in 2018, and we delivered, we compensated. We'll do the same going forward. We're quite careful in our forecasts.
Thanks.
I'll just add a little bit to that. In terms of the gross margin performance, just to get it very focused, we've got four businesses that we need to turn around. They're well in process of what's happening. There's a couple in technology, a couple in the E&M. If we do that, our gross margin will be where we need it to be. On Hinkley Point, they're 30% through the project. They're not stopping. They're placing orders. Yes, something could happen, they are continuing on the program, and they're looking to accelerate the program to ensure that they meet their targets of coming online at the right time. Then they're going to move on to Oldbury and do the next plant at Oldbury. That's what the EDF objectives are.
Okay. Next question come from Patrick Hoch, then Mr. Tornwald.
Yes. Two questions from my side. First of all, can you provide us target range for your margins in your new divisions? That would be good to know, especially looking to 2020. My second question is regarding the lawsuit or the potential lawsuit against the former Bilfinger management. Any update here? Thanks.
Yes. Our overall EBITDA target hasn't changed, right? If you back out the numbers, high single digit is where we'd like to be. Could we do better? Perhaps. If we achieve the high single digit, which is a way to go from what you've seen, then we'll be approaching our 2020 target. I would leave it there. The lawsuit, potential lawsuit against former executive directors, Vorstand. Interesting. A year ago, again, almost to the day, we had the board meeting, supervisory board meeting. They had the final presentation of the first legal opinion. That was well over 300 pages. The meeting, the discussion meeting around that took quite a long time. We ran that meeting well into overtime.
It also raised questions, because of the magnitude of the potential, I'd say potential number, which we attached a three figure million digit to that, and the press did the rest, we felt we had to go ad hoc, which we did. Nevertheless, in the course of those discussions, it also raised some questions which remained unanswered even through further discussions inside of the supervisory board, whose job it is to do these kind of things. It's not us, but of course, we're very attentive bystanders, and we're a party to the discussions. It was decided to commission a second legal opinion, which we received somewhere after the summer. Again, intensive discussions, still some gaps open, and even some contradictory points of view on certain parts.
Yeah.
For that reason, we went for the third legal opinion. When I say we, the supervisory board. That third one was discussed at the supervisory board meeting on Tuesday this week. We've had three opinions. We're done with opinions. Number 1, well over 300 pages. The last one also was well over 100 pages. I think no secrets, that the first one was done by Linklaters. The second one was done by Professor Hoffmann-Becking, and the third one by Professor Habersack. Yeah. All of them very deep, very founded, with that last one, all of the remaining questions of the discussions out of the many hours of discussions of the supervisory board were answered, and they decided then to proceed. The next question is, what does proceed mean?
It means the following, is that we will now advise, I want to say again we, that will be the supervisory board and their legal counsel, will advise the former 12 executive directors of Bilfinger of our intent. They, of course, will then talk to their legal counsel. Their legal counsel will ask us to show cause, we will open an electronic data room where they can access the data that we have. Then, of course, that is the preemptive phase, then it goes into discussions. They will then also then share information with us, then, of course, we evaluate, the process goes on. It is a lengthy process. It is not taken lightly, as you can tell. The decision was reached at the board unanimously to do what we are doing. Now we go to the next step, we wait to see what develops.
Okay. Mr. Tornwald, then Greg, then Mr. Kuglitsch.
Yes. Good afternoon. Just two questions, please, regarding the cross-margin again. The book-to-bill was pretty outstanding again for 2018. Can we also see some cross-margin improvement out of the price quality out of the order backlogs, or do you feel more comfortable looking at your order backlog quality? The second question is regarding, again, the cross-margin. You were adding to the 2020 targets, the portfolio adjustments, then we learned that it is 4 units which are under-delivering, so to speak. You could also improve the cross-margins and achieve your midterm targets by portfolio adjustments and selling down four of those companies. Is this part of also your strategy how to achieve the 5% margin target? Thanks.
Maybe I will begin, then pass it to Duncan. I know he is dying to jump in there before I commit him to higher numbers. We do track gross margin at the order intake level. Yeah. On a quarterly basis and even on a monthly basis, our regions, our segments report, we are trending upwards. We are trending upwards in our backlog because some of the lower margin business is coming out because higher margin business is coming in. That is the first step. We look very carefully at what is coming in. We also give instructions to our salespeople at where we think they should be targeting gross margin in their sales contracts, especially around scrubbers, where that is a little bit easier to do.
Of course, the challenge goes not only from bringing the order in with a theoretical gross margin, but delivering it to the bottom line. That's where Duncan comes in.
Thanks. Christina said earlier about being picky, which is a financial term as we all know. We are more selective now in what we do, in both ways, how we renew contracts and the ones that we win. Yes, the margin quality in the order book is good, and where those are renewals, in the engineering and maintenance sector as well, we are being tougher with our customers. That means sometimes we lose contracts and move on to others because in the engineering and maintenance element, there is a resource shortage. We have 35,000 of those resources. We are going to put those onto the work where we get best value from them. That will mean a little bit of a change sometimes in the customer portfolio that we have, which is positive.
When we look at, it's come forward as selling underperforming companies, we're turning those around now. They're in a position now where they're going to start contributing. Does it mean we're not going to sell companies in the future? No. We'll always look at what the portfolio looks like and the value that it brings. The four that I'm talking about now, they're well on the track. There were some isolated issues in some of them, which can be solved. There's others that have had a restructuring, and we're through that, and we're confident that we're going to be delivering those successes into the future.
The number four appears a number of times, just to avoid confusion. Again, going back to 2017, February, when we began to share our 2-4-6 strategy, we said there were a number of entities that didn't fit perfectly into that strategy for various reasons. Easybone being South Africa is outside of our geographic target. Others were loss-making. We had, at the time, 13 loss-making entities. We have five that were accretive but outside the strategy. The loss-making, we sold with sense of urgency because they were bleeding cash. The last one was a JV that we terminated beginning of last year, and that went into liquidation end of last year without further financial consequence. The 13 got a check mark.
Of the five accretive other operating entities, as we call them, one we reversed back into the fold, it's become the cornerstone of our cross-border maintenance concept in Europe. That one is reintegrated into the fold. The four companies that Christina mentioned are the remaining accretive companies that two have signed, one of those two has closed, there are two remaining, including our operations South Africa, which we expect to sell during the course of 2019. They will also bring in some funds, yeah. The ones that Duncan refers to, in the four, this is ones that we intend to keep within the technologies division. We mentioned the under capacity. We know why they were underperforming, yes, they are working on Hinkley Point. They're also working Olkiluoto. They're also working on Flamanville in France.
There's business in the nuclear outside of Hinkley Point that's taking us forward, that's using the idle capacity. Finally, some of the companies that I mentioned when we did the deeper dive, we looked not only at our companies and what they were doing, we also looked at the competitive landscape. The competitors were doing 2%. We think we can do twice as good. That's four. When you take out our salaries or 1% for headquarters, that four turns into a three, that's quite a long way from the five target we have.
Therefore we said, "Look, we may not be the best owner for that kind of business." It's something which we didn't have on our screens in 2016 and 2017, having gone in deeper now, we say, they're great, the people there are good people because they're better than their competitors, they just don't match our long-term aspirations. Therefore, given the right owner, we would sell those companies, rotate that money together with the sale of the four accretives into small opportunities, higher margins. What is higher margin business? We like our footprint. We're in the customers' process facilities. They come to us and talk about digitalization. They talk about overall equipment efficiency. We speak the same language. We'd like to do more for those customers.
Taking that money, putting it into the same industrial footprint, yet at a higher margin, let's say we're taking Equinor for one example, then that'll be, I would say, germane to us achieving our 2020 5% aspirations.
There are no overlaps between yours and Duncan's?
No. Hopefully, I took about all those numbers. No, we're very well synchronized.
Okay. Craig Abbott.
Yes. Thank you. I actually have three questions now because one of them is a follow-up from one of your answers from now. The first one is, I just wondered if there are measures you can take, particularly given the high share of MMO of your business, to finally reduce somewhat the high seasonality, particularly of your cash flow. Secondly, I just wonder if you could update us on your targets for the central costs by 2020. Thirdly, the follow-up, Duncan, you just mentioned that you can afford to be tougher now in your negotiations with the customers given tightness in the market you mentioned. That's the first time I think we've heard that in quite some time. Is it fair to assume then that maybe the pricing power is shifting a little bit back to the supplier side? Thank you.
I'll take that one first. Yeah, we see that it is different in different regions. North America is very strong at the moment. There's a lot of growth there. Some good projects, good investment happening, and of that, very much a seller's market. We've seen it again in Europe around the refineries. When it comes to the turnarounds, if you get a good run in those turnarounds as you go through generally the spring months and the October months, and you can move your resources from one event to another and get continuity through that, you can look to then secure very good teams and deliver those to customers on a rolling basis. They come back to us year after year after year. There's other people who would happily have those resources.
Would happily come in and say, "Okay, we'll take those." Where some of our customers are maybe being a bit tougher, their markets are a little bit tougher, we maybe shift those around to other areas that are a little bit stronger for our perspective. It's something different. We haven't done a lot of that in the past. We've been very loyal to our customers, we want to see that loyalty come back. People have seen our business performance. They're seeing that we do some of these things for free, literally for them. They've now actually got to start recognizing we are an efficient business, we want to see our profits recognize that efficiency and delivery that we do, we're seeing that.
I can take the question on seasonality. It is a fact of life. The weather does play a role, the demand, of course, goes with the temperature, if you like. Where we are successful, we have a good model. We have, for example, a very strong company in Poland that has over 4,000 employees, and at any one time, more than 2,000 are working outside of Poland. We kind of have a, if you like, a wage arbitrage, going from east to west. We'd like to have more of that. We do have a lot of legacy companies, a lot of people that have been with their companies for a long time, and just terminating them and replacing with temporary workers or seasonal workers is not really something we would be looking at doing.
We'd rather rely on attrition, as those people come off the payroll, we'll propagate our arbitration role model. Now, there are things in place in Europe where various countries are saying, "Well, you must pay the temporary workers the same." That's true. What we find also is that it's not just the hourly wage, but also the enthusiasm and appetite to work long hours, to work weekends and turnarounds, is higher in the East than it is in the West. It's not just about hourly rates, it's also about how these people behave and drive productivity. Yes, we are aware of that. It'll take time to iron out. We think we have a good model, we think that given time, we'll be able to reduce those overcapacity in the lower season.
Greg, we were not 100% sure. You were asking for the central cost target?
That's it, yeah.
The 1%?
Yes.
Yeah. It's a bit difficult going forward with that target. This was part of the 7.5% SG&A target, and the SG&A target is absolutely valid. Yeah. The 1% was related to the old allocation of the headquarter costs, and we will have a more accurate allocation of these headquarter costs or corporate charges going forward. In the new figures we have provided you with, the new way of allocating it, the more accurate way is reflected, but so the 1% does not fit anymore. We do not have a new subtarget in that, but the 7.5% SG&A is confirmed, and in the end, this is what matters overall. The rest is more a allocation issue.
Okay. Thank you.
Gregor Kuglitsch, please.
Thanks. A few questions from my side, please. Just coming back to those 2020 margins, is there any way you can give us some kind of sense what you think you can simply get from the starting point, which I think is 1.6%, what you aim to achieve from portfolio rotation? I just want to get a sense if we're talking 50 or 100 basis points or whether that's completely off the mark. Because obviously we can get the OOP, that's an easy one. But how much else are you thinking about churning? You said it was not going to be massive, but just if you can give us some kind of ballpark figure. The cash flow, just perhaps, I think you mentioned in your presentation, Ms. Johansson, on the supplier payments in the fourth quarter.
Can you just give us a sense whether you think there was something that was a little bit abnormal? I suppose more structurally, I think your working capital trade, working capital is like EUR 500 million for a business making EUR 4 and a bit billion of sales. Do you think that's the right level? Do you think this makes sense in the contracting operation that you effectively have to fund your suppliers? Finally, and I don't think you do, but can you confirm to us you're not using any supply chain financing in terms of any sort of credit facilities for your suppliers? Thanks.
Okay, maybe I would start with the margins question. I can do back of the envelope as probably you can, too. The key number there is EUR 300. We think there's roughly EUR 300 million in revenue in the companies that we would either dispose of inside of accretive OOP and positive but dilutive portfolio rotations. If you take EUR 300 and they're doing 3%, that's EUR 9 million. Right? If we were lucky to buy EUR 300 worth of new companies doing 7%, that's a 5% spread. If we can squeeze another EUR 15 million-EUR 20 million out, we would have done a really, really good job. It's in that order. It's not a lot more than that. That's back of the envelope calculation, based on the expectation that we would be selling roughly EUR 300 million in revenue.
Coming back to the question first on the supply chain financing, no, we don't have any supply chain financing. On the working capital, the effect at the end of 2018, that is related to a delay in making supplier payments. Maybe it assists you if I say that the amount that we're talking about is around EUR 30 million that was delayed from, obviously, instead of paying in December, paying it in January.
Thank you.
Next question come from Mrs. Yip.
Hi. I was just wanting to ask a basic question on the outlook for 2019, and that's if there are any specific adjustments or considerations on the IFRS changes for this year.
Generally the outlook is giving on a like-for-like basis, the nature effect on the IFRS change will be visible in the cashflow. And there we also made a little mark on the slide that like for like free cash flow reported. We say we will get the break-even but the IFRS 16 changes will have a positive impact on that number in addition. This is the major impact on the earnings, its not so significant, most probably on the EBITDA, but anyhow there. We have been more qualitatively, so it will support EBITDA adjusted but only to a minor degree
Mr Tasse.
Yes. Thank you. My first question is just a clarification one. You mentioned the book-to-bill should be above one across the year. Do you refer this to 2018 or do you meant 2019?
In 2018, it was 1.07, check mark done. In 2019, if we are to continue growing, which we expect, again, we have to be above one. Our 5% CAGR, we have a little bit of a head start with a 1.07 in 2018, but we still need to be close to 1.05. That's the challenge.
That's the guidance then for 2019?
It's the same guidance we gave in 2017, unchanged, 5% CAGR through 2020.
Second question is, could you give us a rough ballpark figure how much nuclear, biopharma, and scrubber sales you have in your technologies division?
As we showed, we are around EUR 450 last year. Going to be EUR 500 this year in revenue. I would say it's going to be close to a third, a third, a third. Yeah. A third biopharma, a third nuclear, assuming of course, we kick start Hinkley Point, a third will be the scrubbers. The year afterwards, I think the scrubbers will outpace the others. Of course, automation, which we also have in that group, feeds into those because they're part of the subsystems.
Yeah. Never say something different than your CEO, I would like to market a little bit our new fact book, where we also did the industries plate. For the new segments. There we have a split of the technologies revenues. In 40% energy and utilities. This does include nuclear, but it is not only nuclear. 40% pharma and biopharma. 10% chemical/petrochem, 10% oil and gas. You find that on your stick.
Thank you. The next one is on your guidance. You roughly guide for the same growth you achieved in 2018. When I assume you are capable of doing EUR 60 million improvements in EBITA like you did in 2018, you would arrive at EUR 130 million, if I do my math correctly. Is there any risk to this assumption?
35.
Your math.
Yeah.
Your math is saying.
Is there any caution you take which can go wrong in 2019?
We've seen so much in the past, right? We've been burned by stuff coming out of the woodwork. Even this year, we had a minor hiccup, which you don't see because our stability is enough to cover minor hiccups. We had a hiccup out of 2007, right Things can always happen, right? Your back of the envelope mathematics. As a school teacher, I would say, check the box. What's the risk? We said more than 100. You have a higher number. That delta is the risk.
Okay.
It's early on in the year, give us a chance.
Okay. The final one is on your risk for 2019 regarding Nord Stream and the coal exit. Is there any immediate impact that might come?
No. Nord Stream. We did Nord Stream I and number II. We provided the SCADA system, or SCADA, depending which side of the Atlantic you're on. That stands for supervisory control and data acquisition, the monitoring systems, if you would like to be more specific. Roughly EUR 15 million one-time project work. Delivered on one. That qualified us for two. Also now delivered. We've done our part, so to speak. We've had no approaches from Ambassador Grenell. He's written to the owners of the pipeline, I don't think he's written to the smaller companies that deliver components into that.
Okay. Any further questions? Yeah.
Can I just follow up on this IFRS point? Am I correct why it affects cash flows? Basically the finance element you book below, is that right? Why is the cash flow different? Obviously to us, nothing has changed economically. You're just accounting for the leases differently. A little bit of a detailed question. If you want to take it offline, that's fine.
You mean because of IFRS?
Yeah. It's just the interest expense drops below.
It's an interest component moving to the financial cash flow. Yes.
How much lease liability do you actually have to put on the balance sheet?
We do not have yet the number. We will have a more detailed estimate in March when we publish the annual report.
Okay. Thank you.
Okay. Is there anybody wanting to pose a question in the room? No. There is none either from the webcast, maybe because you are all here, which we highly appreciate. I would conclude the Q&A session and, yeah, handing over to Tom, maybe, and we will have a get-together afterwards. Yeah.
Again, thank you very much for your interest. Thank you very much in following us. Yes, look forward to the next time, and look forward to being able to chat with you individually at the end of the room or somewhere else?
Sorry. We put away the chairs, and then it's inside the room.
Very good.
if you have time, yeah.
Thank you.
You're welcome. Yeah.