Good afternoon, ladies and gentlemen, welcome to our analyst and investor conference call on the results for the second quarter of 2019. We will start with the presentations of Tom Blades, CEO, and Christina Johansson, CFO. Afterwards, we're happy to answer your questions. For this, I would like to hand over to Tom Blades.
Okay. Thank you, Bettina. From my side, a warm welcome and good afternoon. On page two, I think the headlines are obvious for us. We're looking at Q2 as being a very robust quarter. You'll see why as we go through the numbers. For me, in particular, I take a lot of pride in announcing that's our eighth quarter in a row of growth, 8% revenue growth and continuing to take in orders at the same very high level that we did in Q2 of last year. I think as far as top-line momentum is concerned, we check the box, we're on track, and we're driving forward exactly what we said we would do back in 2017. EBIT is improving. We are still limping a little with one of our subsidiaries in the technology portfolio.
I think as you look at the numbers, and as Christina walks you through them, you'll see that in E&M, both in Continental Europe, and the North Sea, and of course, E&M International, we are delivering on plan, and I'm very pleased with the progress. Looking at the bottom line, the net profit, it's in line with the plan. There is a lot of movement there again, IFRS driven and Apleona effects, let's call them that, which again, Christina will show you, but also there we're moving in the right direction. Free cash, we're better than last year. Operating cash flow has improved. It's still negative, but it was also very similar last year. We're ahead of last year, and that gives us confidence to reaffirm our outlook on all fronts, top line, EBITA, and cash flow, as I will repeat at the end of the presentation.
I think the overall message is we're robust, we're on track, and we're still growing. We have our overview of the market as before. I won't walk through all the points, but I'll pick up a few which I think are germane to our business. The orange one, this is quite interesting. Polyolefins has been a demand or a growing market for many of our customers. That growth is actually plateauing out. On the flip side, fertilizers in Europe has been a declining market for our customers, and that's kind of bottoming out. We've got a plateau and a bottom on one side, we thought we would flag that with an orange marker.
On the positive side, the North Sea business is still going very well, growing both in terms of revenue and I think profitability on both sides of the North Sea, both the U.K. and the Norwegian side. The oil price at ±60 for Brent and ±56 for WTI is exactly I think as people expect. It's above what our customers have been budgeting, and therefore cash flows are positive, and that cash gets converted into catch-up programs on maintenance. It's good for us. What we also notice in Europe is a turning point from, I think, naphtha-driven investments to ethane-driven investments. We see that in the projects that were announced in Antwerp and I'll mention the names, but I think you know the projects in the meantime for Borealis and Ineos.
We see LNG projects being announced in Germany, not for export but for import, so LNG regas terminal in Brunsbüttel. Overall, that theme speaks towards gas taking a stronger role in Europe, not only in energy but also in chemicals and petrochemicals. We flip the page, we come to our international markets. In the U.S., it's still very robust, very much driven by what's happening in the Gulf Coast, so Texas, Louisiana. A lot of projects ongoing and we're participating in that. For us, a robust and unchanged environment. In the Middle East, I mentioned it last time, overall demand on electricity is plateauing or even dropping as efficiency picks up. That's the red marker. What we see in our business, not only for us but also for our peers, is the orange marker in terms of in-country value.
This is where the government of the various countries around the Gulf, in particular Saudi Arabia, the Emirates, and Oman, are driving the local content. By local content, it's first and foremost employment of locals, so Omanis, Emiratis, and Saudis, but also where do companies generate value? Where do they spend value? Where do the profits go? The ICV calculation is actually quite complicated, but it is driving towards localization and making sure that people invest in those countries and drive business there. You're able to command a higher price or even get a last look if it's a tender, if you have the highest ICV, and this is why this is such a strong focus for people in our business, not only for Bilfinger but also for our peers, and we think we're very well-positioned to take advantage of that.
If we turn the page, we're often asked, of course, the infamous or famous project in Hinkley Point. For me, I'm not worried. I do see the timeline moving right for the award of our bigger offer. We thought we'd try to make it a little bit simpler to understand on this graphic. I hope it does that. I think it's very important for those following Hinkley Point to look at June 26th this year. This is what EDF called Jour J in French, which means essentially Day Zero. What happened there was that the concrete for the foundation of the first reactor was poured. That's the picture you see in the background of our graphic there. This date, 26th of June, was exactly what they predicted. This is one of those rare projects, which although it's a multi-billion, double-digit project, is actually running exactly on time.
This, of course, means that as they progress through their time chart, they will be awarding the outstanding NSSS work to us, which is now also added in what is called balance of plant. Our expectations for the order before year-end is not only necessary for us to meet and exceed our order entry targets, but it's even more important for EDF to hit that target in order to stay on track with the project. The actual graphic itself shows that at the end of June, we had a little under EUR 20 million in orders. These are early orders working around the engineering, working around preparing the contract, working with EDF on the timeline, the scope, the long lead items, everything kind of working in our direction.
Today, the end of July, beginning of August, we're above EUR 20 million. You will see there on the graph that's what's intended to show. By the end of the year, we'll add another EUR 200 million plus to that, probably closer to EUR 250 million on top of what we already have. That is going to be the award of the NSSS and the balance of plant. High level of confidence on our side, driven by the need of EDF to stay on their timeline, which to date has been amazingly on track and will ensure the order comes our way before the end of the year. The infamous scrubber business, again, I like this business. I like it because it's driven by things we see across the market. Our customers are concerned by the environment.
The curve here, it's just a kind of a reminder that at the end of Q2 last year, although we did a lot of talking, order intake was zero. A few weeks later, that turned into a little over EUR 60 million. That's the Q3 point 2018. A nice pickup as we go through and forward. We begin to sell our production slots. You see a plateauing there, Q1 2019 to Q2 2019. That was intentional. We kind of filled our slots. Our capacity was running at 5 units a month going forward. We then looked for additional manufacturing capacity closer to the shipyards in the Far East. We closed in on a deal in Vietnam that will now come on stream in the second half of the year.
As we go into 2020, we will do the same for China, which is why we are now able to offer additional slots to our customers, and that is why we see the order intake going up as we go forward. Again, here, we are on track. We are not one of the top three, but we are definitely in the top 10. We see continued interest, and we see continued book building, which again, as I mentioned, we will meet with our additional manufacturing capacity in Vietnam and in China. I think with that, I have kind of hit the highlights. I have hit the marketing backdrop, and I would hand over to Christina for the numbers.
Thank you very much, Tom. Let's start off with the financials. A closer look, first of all, on page eight, orders received. We had a very strong quarter two. As you can see, we were in line with quarter two last year. Just to remind you, quarter two last year was the strongest quarter when it comes to order intake. We were meeting that organically +1 even. The mixture being a bit different than last year in both quarter one and quarter two this year, we have seen more a steady stream of what we call smaller project with a size below 5 million. We have some larger projects in the pipeline that we expect to see coming into the order books in quarter three and quarter four, Hinkley Point being one, but also a number of other ones.
Just to remind you, last year in quarter two, we had a substantial order intake from our North American project, LyondellBasell, which was above EUR 100 million. Book-to-bill remains at one, and also our order backlog after the June closing is in line with what we had last year at the same time. Very solid start. Maybe also mentioning that we had, and we will come to these numbers, a very, very strong order intake in Europe and also in the segment technologies. Proceeding very well and not feeling any weakness in regard of the market situation. Page number nine, proceeding to the sales numbers. Given the very good order books that we started off this year, I remind you, 12% higher order books in January this year compared to one year earlier. We are also here proceeding and generating a strong sales growth.
In the second quarter, we had an organic growth of 11% in sales. We are year-to-date at +8% when it comes to the revenue line. For the full year, we are not expecting to see 8% for the full year. We are still sticking to our guidance around 5% organic growth in the revenue line for the full year. Adjusted EBITDA improved to EUR 17 million versus last year, EUR 12 million in quarter two. We are year-to-date then accumulated at EUR 13 million for the first half year. We also made an improvement here and very strong performance, as you will see, from Engineering & Maintenance Europe and also Engineering & Maintenance International, being also strong and compensating for the difficulties we have in one legal entity in the segment technologies that are what we also reported after quarter one, in line with the plan.
It takes more than one quarter to solve these problems and therefore, we also have a weak quarter two in technologies. We expect that we will now in quarter three and quarter four start to see the clear improvements here. This single entity, we are expecting to be at a turnaround point in quarter four this year. The special items or adjustments further being reduced. We had here in quarter two, EUR 14 million of special items, most of that related to our rollout of IT investments, so our SAP rollout and also HR systems being rolled out. Clearly, we have now spent EUR 13 million during the first half year with a clear target that the special items, the adjustment, will be further decreased this year. Obviously also, going forward somehow in 2020, we expect to have one EBITDA line and no adjustments further.
Strong performance also on the two major KPIs here to get to our financial targets of EBITDA sustainable 5%. On the left-hand side on page 10, you have the adjusted gross profit where we achieved a ratio of 8.5% in the quarter two, which is lower than what we had last year in the quarter two, but heavily burdened by the situation in technologies. If I would exclude the single unit that we are talking about in the comparison, we would have an improvement here. Looking on the right-hand side at the adjusted ratio for selling and administrative expenses, we had the first quarter below 8%, this is something where that we have been cutting back on these costs all the way through the strategic implementation. In 2016, the ratio was as high as 10.6. Last year, we closed at 8.7.
We now have a quarter below 8%. However, we do not expect this year that we will be able to keep 7.9% for the full year, but a further improvement to the 8.7% from last year and with a clear plan, also to achieve 7.5% or below that in 2020. A lot of activities here to further reduce our SG&A ratio. Page 11, we go into our three segments, starting off with technologies. Clearly, also in quarter two with our underperformance related to one single entity. We see that we have a revenue growth organically 6%. We also had 5% organic growth on the order intake side. On the adjusted EBITDA, we had a loss of EUR 12 million, most of that related to the single entity that we also mentioned in quarter one or after quarter one closing.
Year to date at minus EUR 22 million in the first half year. We are very pleased to see that we are stable enough to be able to make up for this loss, thanks to Engineering & Maintenance. We clearly see that with this year will, unfortunately, Technologies not be able to get a positive result at the end of the year, but we will be stronger and better than the results we had last year, even if the first six months have been very tough here. We expect quarter 3 a clear improvement, and quarter 4 a further improvement, and all in all, a better number than what we had last year in Technologies. Proceeding to the second segment, which is Engineering & Maintenance Europe, a very good first half year. We moved here 2% increase in revenue. Orders received increased with 8%.
A lot of this extra turnover revenue growth and also orders received coming from Northwest Europe. book-to-bill as high as 1.1 and adjusted EBITDA achieving EUR 28 million profit or 4% margin. Very strong oil and gas performance both in Norway and U.K. The scaffolding side and our turnaround concept contributing to this excellent performance in Engineering & Maintenance Europe. The guidance continued to be positive, both on the revenue side and also on the EBITDA side. Very well on track, and a pleasure to see how well we are developing this business. We have the Engineering & Maintenance International. We had a very strong sales, especially in North America, organic growth 44% versus last year. Orders received clearly below what we had last year in quarter two. Here we have a number of larger projects that have been delayed.
Also here we are expecting to see improvements in the second half. EBITDA, a strong improvement here growing from 0.9 ratio last year, quarter 2 to 2.9 in this quarter. Both contribution improving from North America above all, but also from the Middle East. Moving from EUR 2 million profit to EUR 8 million profit. Also here, the guidance remained the same, positive developments and growing both in profitability and in sales. We proceed to our cash flow side. In general, we can say that both cash flow and our DSO improved in quarter 2. DSO, just to remind you, including not only the accounts receivables, also our WIP balances and our prepayments. In total, not enough progress here.
We are expecting to see here, also thanks to a stronger profitability, but also thanks to a lot of initiatives on the working capital side ongoing, an improvement in quarter three and even more than in quarter four. We're expecting to pick up on the cash flow side and to see a turnaround here in the cash flow numbers. Adjusted operating cash flow, still negative but improved. We see here minus eight in the quarter two. Last year we were at minus 19. On the net trade assets, we had a clear improvement on the DSO, moving from, at the end of March, 83 days to now 78 days. Very good progress, still a lot to be reduced here in the number 78. Unfortunately, on the DPO side, we had the other way around.
We had 69 days at the end of March, and we are now at the level of 65. Here, substantial initiatives ongoing. Looking at the adjusted net profit, positive, not exactly in line but almost in line with last year, quarter two. Here we need to keep in mind that we had substantial changes when it comes to the financial positions, and this having a large implication on the net profit. I will come back to that. Net profit reported being negative at EUR -6. Last year we were at EUR +11.
On the financial side, we need to keep in mind that we, last year in quarter two, were able to increase the valuation of our participation note in regard of Apleona, our share, with as much as EUR 22 million in that quarter, to be compared with this quarter this year where we only increased it with EUR 3 million. That is the major reason for the swings in the financial results. We then proceed to page 15, just to confirm that we also in quarter two, were able to finalize the refinancing. In quarter one, we went out and collected on the promissory note side EUR 123 million, no covenants, and we had an interest coupon of 2.2%, maturity, three years. We also turned our vendor claim note with Apleona and EQT. We turned that into cash, EUR 128 million. The cash arrived in April.
We have in quarter two successfully closed a new bonding of EUR 250 million. Also here, no covenants with an interest coupon of 4.5%, maturity five years. In the meantime, we are still then sitting on the repayment of the old bond, seven years old, going back to a period of time where we had investment grade in Bilfinger at a very, very favorable rate, 2.375%. This will be repaid early December this year. In the meantime, it obviously has got some implications on some of our KPIs. In December, we will then get back to the normal KPI level again. I would like to give back to Tom to talk about the guidance for the full year.
Okay. Thanks again, Christina. Let me kind of wrap it up. Revenue up, order intake maintained at a very high level. SG&A down, EBITDA improved, cash flow improved. We need to work on gross margins, in particular our problem child in technology. With that, no hesitation in reaffirming our 2019 outlook. We would like to comment on our long-term picture, our three-phase strategy. I think a lot of green hooks have been set. We are not quite ready yet for ticking the box there on first successes in new growth areas. For that, we do need to continue what we're showing you in E&M growth international. We need to land Hinkley Point and keep the scrubbers going up, but we're confident we'll get there and be able to do that too, which of course then feeds into top-line growth continuing.
What is positive is that the refinancing is now behind us. Great result. Again, thanks, Christina there. Looking forward, if I went to the right-hand column, we can already see that productivity is moving forward too. Complexity is being reduced. We're not quite there where we would like to be yet. That's part of the, let's say, the final stage, for which we're also on track. With that, I think my bottom line is, we're very pleased but not yet satisfied. With that, I would pass it back to Bettina.
Yeah, thank you very much. We would now start the Q&A session. We would now be happy to take any questions you may have. If you would like to ask a question, please press zero and one on your telephone keypad. If you would like to withdraw your question, please press zero and one. I repeat, to ask a question, please press zero and one. First question comes from Gregor Kuglitsch from UBS.
Hi, good afternoon. I've got three questions, please. The first one was just coming back to technologies, if you can give us a sense where we are now. It's obviously another big quarterly loss. I just want to understand where that particular entity, I think it was in biopharma or something like that, where that is and when do you think you can break even? Second question is on cash flow. I think you flagged perhaps some challenges, some parts of the working capital. I just want to get your comfort level around that guidance of, I think, break-even on a pre-IFRS 16 basis. It just looks ambitious, but maybe you see, obviously, you've got a much better view than we do externally. Then finally, you haven't specifically commented on the sort of 2020 margin targets, but you do flag challenges on the gross margin side.
I want to understand that 5% margin that you'd previously talked about. This is not mid-term anymore, it's like tomorrow. At what point do you reassess that, and what does it depend on? Thank you.
Okay. Thank you, Mr. Kuglitsch. Maybe I'll take questions one and three, and bounce number 2 over to Christina. I think in terms of the loss-making entity, which is in a number of markets, not only in biopharma, what we've done there is go thoroughly through the books. I think, again, if you follow our comments from last time, how did we get into this position? It was a company we acquired a while ago. We acquired with it the management and the family management, and we then made progress going forward. As part of that management change going into late 2018 and 2019, we actually reviewed what was on the books in terms of projects. We looked at the change orders at not only potential completion but also cost to complete, and we made certain provisions.
We did that also in Q2, which led to some of the numbers you see in our bottom line in technology. We're relatively confident that the backward-looking part of the project reviews is done. We've also been able to enter into negotiation with the customers on a number of change notices, which if we can then complete those in our favor as expected, will drive the turnaround in that entity and take us towards, at least for the quarter, a black zero in Q4. That's what we're intending to achieve. We're on the way. We're not there yet. I think going forward now, I'm quite confident that you'll see an improvement in the numbers.
Maybe if I can add to the question number one on technologies. Last year, technology had adjusted EBITDA, a loss of EUR 26 million. We are now at minus EUR 22. We are expecting that we will be able to improve that number, however, not our original target for this year of a break even. We will see that we will start to pick up in quarter 3 and 4, but we will not be able to pick up at the speed that we will bring it to break even. We are convinced that it will be a better number than the minus EUR 26 that we had last year.
Clear. Thank you.
If we look at the cash flow. I think the biggest improvement, the largest improvement that we need to gain here to improve our cash flow generation is obviously coming from a reduction in working capital. Within the working capital, it is mainly our WIP balances that need to be reduced. This is a work that takes some time. In many cases, these individual WIP balances can be substantial, they are linked to negotiation with clients on claims. They also link to how to interpret contract terms and these negotiations, because you're always trying to drive for a settlement and not for legal actions. They are time-consuming. At the same time, we are proceeding with many of these projects, you don't want to have a situation where the cooperation is not working. We have an action list.
We know exactly which legal entities, which projects would need to contribute to this improvement in working capital and a reduction in WIP. It is difficult to judge how fast you can proceed and get settlements and get the cash into your books. I'm convinced, given also based on experience from other project businesses, that we will clearly start to see this. I expect personally to see some progress on the working capital reduction in quarter three, and then quarter by quarter to improve then. In addition, it's also a lot about contract management when we are signing off new contracts, and I'm not saying that we have the full freedom here to influence the payment terms, but I think we can do better than what we have done in the past.
If the whole organization is active in making sure that we are not only generating sales and generating profit on these contracts, but also getting the cash in as soon as possible and also in full. It's also a bit of a culture change that we are presently focusing a lot, goes through the whole organization. I'm quite confident that we will see progress here quarter by quarter. That's the biggest confidence and the most important project going on. Obviously also with an increase in profitability in the second half, we would then also generate a sounder and stronger cash flow.
Thank you.
Coming to your third question, the 5% target margin. I think a lot has been written on that and what are the elements and whether we reach there sooner or we reach it maybe a little bit later. I think on our side, we see three major ingredients. One is that entity that we just talked about, being able to do what we just described to you. Again, there, we're feeling confident because we think we've put the past behind us and we have a good pathway going forward. The second is Hinkley Point and the scrubbers. Those are higher margin businesses, and we need them not only on the forward-looking radar, we need them in the backlog, and then we need to bring them through to revenue. I think that will happen.
Maybe it happens a little bit later than we originally hoped, but it is part of a plan and it's part of the expectation. The third element is just a continued focus on execution. When we look around us, we see what's happening to some of our peers, even very much larger, more experienced peers in the project side. Touch wood, that knocking sound is me hitting my head. We haven't had those kind of big hiccups. We had one there in 2018 that we inherited, and we're paranoid in focusing on execution and delivery and avoiding those mistakes. Those three things, that entity, the order intake, Hinkley Point and scrubbers, and finally execution. Those three elements will deliver the 2% or the 200 basis points gross margins we targeted. The other comes from the SG&A component.
We said at the time we will deliver a 300-point improvement, 300 basis point improvement. We were at 10.6. We are sub eight for the quarter. We will be sub 7.5 in 2020. That side is on track.
Thank you.
The next question comes from Marcin Wojtal at Bank of America Merrill Lynch.
Oh, yes. Good afternoon. Thank you for taking my questions. First is, again, on your 2020 guidance. Can you remind us if your 5% margin guidance is predicated on some further divestments or shutdowns of businesses that have a low profitability? Are you making some progress on those potential divestments? Number two, can you perhaps quantify the losses from that problematic entity in technologies that you expect in 2019 so that we can assess what is the underlying performance of that division, excluding the single problematic entity?
Okay. Thank you for the question. Let me take part one. I think Christina already gave you some clues when she described the gross margins in part two. Maybe she'll do that a second time. In terms of 2020 guidance, we still have in our other operations, we have two entities that we're in the process of divesting. Those entities, they're accretive, so they're currently contributing to our bottom line, so they're not loss-making. They are dilutive, however, so accretive in terms of their positive, dilutive in terms of our 5% goal. That would be one element. We're not looking at, let's say, solving our way by, let's say, unloading for example, that entity that's loss-making in technologies. We intend to turn it around. That will contribute to our 5% target in 2020.
Okay. Talking about the losses in E&M, they are related to project business, but not to one project. It's a number of projects. We are here probably talking roundabout that with this year, expect that this project losses, in total, will hit us with around EUR 25 million, mainly then coming from this single unit and related to a smaller number, but a number of projects. By reassessing the cost to complete, but also what we can charge in addition as claims to our customers, we have then another view of these projects and how these projects can be finalized, some of them still being ongoing and being finalized. We are talking roundabout, I would say, five, six projects that have generated around EUR 25 million of loss or expected to generate around EUR 25 million of loss this year.
All right. Thank you.
There are no further questions at the moment. If you want to ask a question, please press zero and one. The next question comes from Christian Korth, HSBC.
Thank you very much. I have a question with regards to the scrubber business. You have said during your presentation that the current capacity in terms of production is five units per month. My question would be, is that also the number that you're currently producing?
Currently it is, yes. We are maxed out at five per month. We will add another five in the latter part of Q3, which is the Vietnam production, and then another five in Q1, which is the China production. Yes, currently we're maxed out, which is what led to the flat topping of that curve I showed you.
Yeah, that makes sense. That also explains, I guess, part of the growth in technologies then in the year-over-year comparison. Okay, perfect. Thank you very much.
There are no further questions at the moment. If you want to ask a question, please press zero and one.
As there are no further questions, with this we conclude today's conference call. If there are other things you would like to discuss with us, the IR team is available. Thanks for joining this afternoon, and goodbye.