Earnings Call: Q2 2018

Aug 14, 2018

Good afternoon, ladies and gentlemen, and welcome to our Analyst and Investor Conference on the Q2 of 2018. On the call with me today are Tom Plates, our CEO Doctor. Claus Patzak, our CFO and Michael Darmlad, Member of the Board responsible for HR. We will start now with the presentations, which will be followed by the Q and A session. With this, I would like to hand over to Tom Plais. Thank you, Bettina, and good afternoon, ladies and gentlemen, also from myself. Moving quickly through the slides and the headlines. Thank you. I think what you're seeing is a continued momentum that we developed already in Q1. Order intake is up on the same quarter last year. We're continuing on double digit growth, and I think that's right to begin with, that's affirmation that our strategy 2020 is working. Correspondingly, the revenue has also increased significantly. It lagged, of course, but also double digit improvement on an organic basis, and we're particularly proud of that. I think on the EBIT line, it's quite easy to be higher than the same quarter last year. You recall that's when we had the provision for some legacy projects in the U. S. A. Cost funding were up, but I think we've delivered on expectations. And we think that the top line performance will translate to more EBIT momentum as we go through the year and continue through the remaining two quarters. Also, our net profit is up, thanks to the mark to market of the PPA note on Apionna. Claus will give you some more details on that. Then finally, on cash flow, we're up above the same quarter last year. We'd like to be a little higher, and I think we're going to make up some ground again in the second half of the year. But the top line growth you're seeing there, particularly in revenue, does account for higher demand on working capital. And accordingly, our cash flow is up. But I think it could be a little bit better, and we will drive that forward, as I said, in Q3 and Q4. Finally, of course, on the back of those bold statements, we do confirm our outlook 2018. And again, I'll try to pick up at the end of the presentation on that. I'll give you a brief overview of the markets and how we're doing before then handing to Claus and looking deeper into the numbers. But generally speaking, the market is positive. We're seeing more tailwinds and headwinds in both segments, both E and T and MMO. If I break it down a little further, oil and gas, we're seeing investments, in particular, brownfield investments in Europe. In the U. S, it's investments driven by shale gas. So the theme and story continues, especially around Texas and Louisiana. And I think some of the announcements we've made, they verify that, that business is picking up. We also see early signs in the Middle East. So we're getting a lot of inquiries from the national oil companies, which again leads us to the conclusion that they're looking to switching from cost cutting to investment mode. It's one of the projects that have been announced, for example, Ruwais in Abu Dhabi, dollars 43,000,000,000 CapEx project that leads us to be also positive on the Middle East market. Chemicals and petrochemicals, I think very similar story. So it's essentially the oil and gas feeding downstream. We see that in, again, Gulf Coast investments for the first time. We're hearing stories of the considerations to build new refineries, oil and gas refineries. That hasn't happened for a very long time. And I think it reaffirms the bullish mood of the North American market. In Europe, we're seeing brand feed investments. So these are expansions, these are enhancements and efficiency driven investments. And then finally, of course, in the Middle East, as I mentioned, I think the fact, for example, that Aramco is looking at acquiring SABIC shows a continued drive to keep value add in country or in the Middle East rather than exporting the goods and letting someone else drive the remainder of the value chain. The CapEx situation around energy and utilities is mainly a nuclear story for us in Europe. Hinkley Point and other projects in the U. K. Continue. They're being dragged out a little bit. We thought they would have materialized by this time already. We're not too concerned as it's not a cancellation or business going to someone else rather than delays in the project itself, and we do expect these to come through either late this year or early next year. We also see a growing demand in regulatory driven CapEx. So this is around emissions and I think some of the work we've been doing on taking our business or our technology from the coal emissions through to the marine emissions, as explained at the Capital Market Day, is bearing fruition. And again, we have a slide on that a little bit further on. Finally, pharma and biopharma. I think this is business as usual, but it's good business as usual because biopharma has been growing the last years, the last quarters, and it continues to do so. So we're very fortunate, I think, to have some aspects of our portfolio that are just very consistent growth stories. Turning the page to MMO. Our MMO business around oil and gas is predominantly the North Sea, both sides, the U. K. Side and the Norwegian side. As predicted there, customers are beginning to benefit not only from the cash flow, but from a balance sheet perspective and turning that benefit, the higher oil price and the fact that they're now able to do catch up work on their delayed maintenance is showing itself in our own order and taking our revenue. That's particularly true on the Norwegian side where, as you recall, we entered into a 14 year extension last year with now Equinor, formerly Statoil, and that's actually paying off well. We're seeing a pickup in activity there. And as the oil price does what it does, it remains high and stable. Customers are getting more confident and turning that into investments into their facilities. Chemicals and petrochemicals, a similar kind of story around Europe but also in the Middle East. And at this moment in time, we're already doing planning for large turnarounds for 2019 and also 2020. So you recall these projects come along every 2 to 5 years. They take roughly 3 years of planning and then 3 to 5 weeks of execution with between 303,000 additional people on-site. So a lot of pre work being done. And already now, we can see the market is going to be tight in 2019 2020, which of course leads to better pricing positions for companies like Bilfinger. On the energy side, it continues to be, let's say, low demand on classic energy. What is proving to be interesting is, of course, alternative energy and our market in the Middle East. I would say in the market in the Middle East, our mainstay countries for energy utilities are Saudi Arabia and Kuwait. And in both cases, I think we're well positioned and also beginning to see the first signs of concerns around emissions. So investments being made or considered to be made in reducing Flusack emissions and trying to adhere to stricter local Middle East environmental regulatory demands. Metallurgy, we've been good in aluminum. That does continue both in Europe and in the Middle East, and now we're seeing the first signs of recovery in steel. So as I mentioned at the beginning, overall, in both of our segments, we're seeing more tailwinds than headwinds, and that means we're optimistic going forward. So picking up some of the examples that we showed at the Capital Market Day, the first one being digitalization, it's going according to plan. So you recall that when we announced our aspiration for 2018, we said that we would invest into digitalization, we would invest into business development. We're doing so. And we are beginning to see the benefits. So digitalization is a startup we're investing. We're in a, let's say, loss making position but expected to be so for the 1st couple of years. However, we are seeing that additional maintenance contracts are coming our way, and they're coming our way because the customers see us as a leader in terms of developing not only things like building a maintenance concept, but also in terms of BCAP, building a connected asset performance, and I think this is a real attest to the work of the team. When we announced the formation of building a digital next, we said we were targeting a population of 30 FTE in that group. We now have all 30 people on board. They're based in Heidelberg, just as I said, at Manheim. We gave them a separate location to, let's say, give them a separate identity, give them a little bit more, dare I say, sex appeal, and that's working well. We've been able to attract not only the numbers but also the right quality of people. We also have new customers. And again, here it's surprising because our initial target market were the small and midsized companies, but now larger names such as Heidelberg Cement, such as Alcoa are coming to us and beginning to talk about the first pilot projects. Another interesting part is that we've also been able to conclude the first of our augmented reality services. A long title, very simply put. We have a number of these Google Lens or HoloLens, as Microsoft will call it, that we've now been able to rent out as a service to customers. And through these, we're able to superimpose additional data from a central, let's say, control center to help the worker out in the field when they're performing their maintenance tasks or when they're performing their repair tasks. So again, another step forward in driving our digital value proposition. Also mentioned at the Capital Market Day was some, I think, very neat innovative technology that we've been able to apply. We've taken our, let's say, old fashioned coal fired power station technology where we've been able to take the flue gas emission cleanup hardware, adapt it to a very different environment, and that's the marine environment. And I think the first result of that, you can see on the slide here, the famous Aurelia has now been running since 2016 without a single hiccup. And when you look closely at the picture, you see kind of a piggyback on the back of the funnel. We've now developed technology further in that fits into the funnel itself. And on that basis, we've been able to attract a couple of large orders in Q3, by the way, not in Q2. And 2 of these, we've talked about from 2 Greek shipping companies. In total, over 40 units have been ordered. Over €40,000,000 was the size of those orders. And if you've been reading the press, in the press, it states that each order is worth about $2,000,000 or cost about $2,000,000 That's because we have $1,000,000 in CapEx and $1,000,000 is the cost of installing this equipment. That OpEx in installing it is actually money made by the shipyards that take the built in technology and actually then build it into the funnels of those ships when they come into port and spend a couple of days before going back out on the seas. We also mentioned some of the tailwinds we're seeing on account of shale gas and other projects. In Q2, we did take in our 1st large contract for quite a long time. You recall the self imposed threshold of €100,000,000 in early 2016. We've now taken in, as mentioned there in the green box, a major contract for Linde. Linde is the EPC. The end customer is Bascome. And that project is well in excess of $100,000,000 Why could we do that? Well, because of all the hard work that the team has put in these last couple of years to drive risk assessment, to drive risk management, to develop the stage gate process and not only to recognize and manage risk through appropriate contracts, but also to execute on risk in the field. That's given us confidence. As I said, confidence not only to try to win these projects, but in this case, we actually were the best offer on the market, and we succeeded in closing up Alinda. That project is on its way. It's in La Porte in Texas, just outside Houston. And if you're passing there, you see a lot of activity. The customer is pleased with progress, and we're also pleased with that contract so far. I mentioned Middle East. In 2 of the mainstay countries for our, let's say, energy, NMO business, Saudi Arabia where we work for SEC and Kuwait where we work for MEW. In both cases, we've been in the country for 50 plus or minus years, working with a very strong focus on energy and utilities. And as of late, we've now been able to develop that position in country to work on oil and gas customers. It may seem a little bit obvious to you, but it wasn't obvious in the past. And I think, therefore, the recent announcement that we released the fact that we've been awarded a project by Saudi Aramco on the Berry gas plant. I think this is the first real success story where we've broken into the oil and gas market, where we're now qualified to tender for other business that Aramco has and where we're actually quite optimistic and be able to win more work. It's a very similar picture in Kuwait. As I mentioned, MEW is our customer since 55 years, and we're now engaged with KOC and talking to various projects where we think we can satisfy demand in the oil and gas business in Kuwait, which until now has not been on our radar. So Middle East continues to be an opportunity for us. We think our systems are in place, not only technical systems and contractual systems, also compliant systems. And with that, I would hand over to Claus and begin to walk through the numbers. Claus, over to you. Yes. Thanks. Good afternoon, everybody, and thank you for joining our call. We will now have a closer look on the financials, and we will start on Page 10. You see that the positive momentum in orders received continued, and we have delivered organic growth in the 5th consecutive quarter now. The 21% organic year on year increase in the second quarter was supported by large project contracts such as Linde Braskem but also supported by new framework contracts. We had double digit increases in both EMT and MMO. Order backlog is up 11% or 13%. Organically, booked 1,000,000,000 in the second quarter was 1.1 percent despite a significant growth in sales. In the second half of the year, we will have tougher comps, and the order entry in our project business can be volatile, as you know. Regarding the U. K. Nuclear tender, for example, I would now anticipate awards only in early 2019. Nevertheless, as the general momentum remains positive, it is reasonable to assume for the full year growth in organic orders received of at least 5%. Now turning to the next page on revenue and profitability. Revenue is up 10% organically, especially due to growth in the European MMO business. This contributed to a mid single digit organic growth in the first half of twenty eighteen. Again, here, as the general momentum remains positive, it is reasonable to assume slight growth rather than a stable development for the full year. Adjusted EBITA of €12,000,000 improved significantly. The prior year quarter was, however, burdened by project provisions of €53,000,000 For 2018, we continue to expect EBITDA adjusted in the mid- to higher double digit €1,000,000 range. And as you know, this includes increased start up costs for business development and digitalization, which will further ramp up in the second half of the year. The burden from special items decreased to €13,000,000 in the quarter, resulting in an EBITA reported of minus $1,000,000 The special items of $13,000,000 include a couple of things. First of all, a $2,000,000 gain from the disposal of one of our dilutive OOP units, a €5,000,000 expense for the improvement of our compliance system, €4,000,000 in restructuring costs and €6,000,000 for IP investments with regard to our process and system harmonization project. For 2018, for the full year, we expect special items to amount to approximately €50,000,000 That is what we have already communicated earlier. Now on the next chart, profit and SG and A first with regard to gross profit or gross margin. We have seen a positive trend in the Q2 of 2018. Adjusted gross margin is 9 has been 9% in the Q2 and is therefore above the Q2 of 2017. But the prior year quarter, obviously, also in the gross margin was burdened by the charges mentioned earlier. However, the adjusted gross margin also improved sequentially. The SG and A expenses also improved. The adjusted SG and A ratio stands now at 8.7%, below the prior year quarter and also lower sequentially. In the Q2 2018, an absolute decrease in administrative costs came along with a stable figure for selling costs where we have strengthened our business development capabilities and invested in digital solutions for our customers. These additional investments in business development and in digitalization are now expected to be just shy of €20,000,000 for the full year. Thereof, cost of digitalization of about €5,000,000 will be booked in our headquarters line item in the second half of twenty eighteen as we have now founded, as also Tom mentioned, DigitalNEXT, our corresponding center of competence. And now on Chart 13, E and P. Orders received there by 21% on a reported basis, 28% organically. That is obviously due to the large LindeBruscan order in the United States. Revenue is up 12% organically. The book to bill ratio has increased to 1.3. The revenue growth was mainly driven by the U. S. Business where we have, as Tom said, tailwinds from the market. We have, on the other hand, still underutilization in some of the ex power entities and also still in the United States, but we expect growing capacity utilization in E and T going forward. In this quarter, underutilization impact the negative impact of underutilization was offset by positive effects from project closeouts. As a result, we have realized an adjusted EBITA of SEK 7,000,000. And for the full year, we expect, as earlier communicated, an organic stabilization of revenues, combined with a significant increase in earnings, which will turn EBITA adjusted back into positive territory. Now on MNO, where we have delivered 25% organic growth in orders. This order development was especially positive in Continental and North West Europe with, on the one hand, new framework contracts and also higher volume expectation on existing ones. Revenue in MMO grew by 10% organically, and that means that now organic growth for the first half stands at 9% at MMO. And given the positive business dynamic, it is fair to assume that we also will see here growth for the full year. Regarding earnings, EBITDA adjusted was €90,000,000 in the second quarter, disputed claims against an important customer, no better than in the Q1 of 2018 when these contracts already impacted results but to a somewhat smaller degree. We talk here about several smaller relocation assignments with a long term customer. We agreed to move the discussion around change order requests into the Q3 to avoid delays of the work completion. For 2018, we continue to expect a slight improvement in EBITA adjustments. Now on other operations, Chart 15. As you can see, we have made good progress on our M and A track. All certain dilutive units within other operations have either been sold or terminated. And in the second quarter, we have realized positive earnings in the amount of €2,000,000 from disposals and the corresponding cash out of €4,000,000 euros With regard to the accretive units, we now have initiated the sales process for 2 out of the 4 remaining units. Looking at the business development of other operations, we have seen a strong decrease in orders received in the second quarter. Orders received amounted to €34,000,000 and was organically 33% below prior year. Revenue has been declining as well to €55,000,000 in the 2nd quarter, being organically 7% below the prior year quarter. The decrease in order entry and revenues was mainly driven by our South African entity, which is facing contract award delays. Looking at earnings, EBITDA adjusted slightly decreased from minus €1,000,000 to minus €2,000,000 especially due to underutilization. For the full year, we expect a decrease in revenue and a significant improvement in EBITA adjusted, last but not least, due to the completed sale of the value of Entities. And now on cash and profit. Operating cash flow improved significantly in the Q2 as anticipated, and both reported and adjusted improved, although the 2nd quarter cash numbers are still negative due to seasonality. Now also for the first half, we are up against the prior year, and that is something which is also good and necessary but also remarkable after the comparably weak Q1 performance. Our target for 2018 remains a positive free cash flow on an adjusted basis. Net profit improved in the 2nd quarter, both adjusted and reported. Reported net profit was €12,000,000 and includes a €22,000,000 write up of Bjorglionar preferred participation note. This financial asset has now a book value of €233,000,000 which is, in our view, still a rather conservative number. There is further valuation upside as long as Aperone continues to develop positively. The valuation of this asset is reviewed every quarter on the base of its financial performance, its planning and other financial parameters. The adjusted net profit of €8,000,000 is excluding this write off effect and also excludes special items with A and taxes. Looking at working capital. You will see that net trade assets increased in the 2nd quarter, both year over year and sequentially, mainly due to the ongoing growth in MMO, which typically consumes working capital, as also Tom mentioned already. Net trade assets in days, however, have decreased year over year. This reflects E and P coming also back to growth, typically with negative net working capital due to prepayments, partly compensating the additional need in MNO. Net liquidity has decreased to €60,000,000 at the end of the second quarter. The development was impacted by a gross induced increase in net working capital, cash out for special items and legacy projects, the dividend payment as well as our share buyback program. For the year end, we expect positive net liquidity despite the still ongoing share buyback back program. And with this, I hand it back to you, Tom. Okay. Thank you, Claus. Then concluding on the outlook and the strategy. I think no surprise on the outlook. We're still confident on orders received. I would underline the word mid here. So it's going to be we're all going to be on the right side of mid on order intake. I think also revenue, the word I would underscore there will be growing. So organically stable to slightly growing. Yes, we will be growing the revenue too. And of course, finally, on the EBITDA side, we have our 2 strongest quarters ahead of us. We have a good top line development. And therefore, we think that is feed through, and we're going to be on track to achieving our commitment there mid to higher double digit EBITDA result. The final slide before questions is on the strategy. We said also at the Capital Market Day, what we define stabilization in E and T, it would be, as I said on that day, 4 successive quarters of positive EBITDA. We already stayed in LME, of course, and with this quarter, we've achieved that. And therefore, we've awarded ourselves the big green check mark on the stabilization phase of the strategy. Now of course, that puts us under pressure because we can only go forward We can't go back. That's well recognized. And of course, on the left side, on the stabilization, shopping list there, the last item was operating performance improved. I think with E and T, we're not where we want to be ultimately, but we're into the green, we're into the positive, and that's what's given us the confidence to close out that phase and to now look forward to the second phase of the 2020 strategy, which is build up. And on build up, you can see already we've shown that we can grow the top line. And I do recall when we unveiled the strategy in February 2017, that was one of the big question marks, can we grow in, I think, what many determined, what many termed to be a mature market. I think we're showing that, yes, we can. So yes, top line growth resumed. The organization is in full swing. Project management is established and we're going forward. And with that, I will pass it back to Bettina and we'd be happy to take your questions. Yes. Thank you very much. And we will now start our Q and A session. We would now be happy to take any questions you may have. The first question comes from Christian Korth from HSBC. I just have a couple of questions. The first one is, may I please ask you to shed some more light on the comment about NMO earnings about the disputed claim that you stated in the presentation, please? Secondly, looking at the overhead costs, these are down quite a bit compared year over year. They were already down a little bit in Q1 and down a little bit more in Q2. I would like to know if this is sustainable already, of course, before costs for digitalization and moving your headquarter that will come on the second half. Then with regards to yesterday's news about the scrubber business, I would like to ask what is your annual capacity? I mean, how much can you actually do per year? And or in other words, how long does the order that you published yesterday take you to work it off? Is it something that will keep you busy for a year or a little longer or a little less than a year? I don't know. Anything would be very helpful, I think. Thank you very much. Okay. Let me begin with a little bit of background on the MNO project that we're talking about, then I will pass it to Claus on the bookkeeping around that. But essentially, we have a very particular long serving customer that is looking at upgrading their production lines. They've taken onboard an engineering company to help them through that. And we're kind of the Tier 2 under that engineering company to actually execute the upgrade, the move of those production facilities. In the course of that work, we have done more work than we've been paid for. We are in negotiations with the direct engineering company and the ultimate customer, But those discussions are not concluded yet. They will probably only conclude somewhere in the Q3. And therefore, we've taken the prudent measures in terms of accounting for those potential disputes. Clive, do you want to add to that? Yes. Just to it's basically everything has been said. Meanwhile, the work orders have been mostly completed and the discussions are scheduled. I would not see any further significant negative impact for the second half. It is something which had an impact obviously in the second quarter. There was also a smaller impact in the somewhat smaller impact in the Q1 and a bit already in the Q4. So that's something which has developed. Obviously, we are looking we have been looking also in the root causes and streamlined a couple of things in order for that not to be repeatable. Then I would go to the next question. That is the overhead costs. In the Q2, that was actually a very low number. So I think the run rate would be more what you have seen in the Q1, yes? And then as we mentioned earlier, if you take that by 4, and then you have to obviously have to add then roughly 5,000,000 digitization on that and then you are on our cost level. Yes. I would add to that that we still remain on track and focus on an ultimate level by 2020 of 7.5%. That was our stated ambition in 20 17 when we unveiled the strategy and the execution plan, and that remains valid as we go forward. To your question on the scrubbers, there's actually a very nice write up by HSBC, no less, on the marine market. So scrubbers are definitely in. I think your study from HSBC shows that currently there are 208. So at the beginning of 2018, there were 208 installed scrubbers on marine vessels. I think you predict 12 50 by 2020. So that's more or less a 1,000 units pickup. Can the market provide that pickup? So we ourselves, with the 40% we've taken in, we're roughly at 80% capacity. We're roughly at 12 months delivery time for those. And based on expectations supported by Deutsche Bank study, supported by the HSBC study, we think that we will need to at least double our our capacity. And of course, our propensity to do so will be driven by the kind of margins we expect. So we do see this to be a very interesting development on the market. It was foreseen, which is why we invested in the 1st place. We do think there's potential to push the margins at least for a period of time while we get over this initial demand and supply issue. And once again, if we can do that, then we will double our capacity from roughly 50 units per annum to 100 units per annum, but the rest will be driven by what we see on the market. Perfect. Thank you very much. The next question comes from Novak Sreedlo. Novak Sreedlo, your line is open. Good afternoon, ladies and gentlemen. One follow-up on the MNO margin, if I may. Could you please give us an update on the current status of the turnaround projects where we are now? Have there been any such projects already executed in Q2? Or are we still waiting for this to come back 2020? And a second question would also be a follow-up, but on the scrubbers, you talked about the current capacity. Can you quantify the current capacity that you have, the one that you want to double? And a third question would be a more general one on the digitalization strategy, providing digitalization solutions to your clients. What we are hearing now is that IT companies start to say complain about service companies entering their business. Is there any risk regarding more fierce competition between say Billfinger and the IT industry, which then might exert pressure on margins? Okay. Good questions, Mr. Kettler, as always. Let me begin with MMO and turnaround margins. Think that's what you're referring to. So we have been doing a couple of small turnarounds. But as I mentioned, I think, a couple of times, the big year, the tough year is going to be in 2019. When I say tough, we're looking at how many can we sign up for. And we try to do this across Europe. So although we're in Europe, we have the 2 divisions, we have Continental Europe and Northwest Europe, the turnarounds stretch from Austria, Germany into Holland and Belgium. And we're trying to take a bigger picture view of these, something which we wouldn't have done so in the past. In the past, we would have tried to address them with local legal entities, and now we try to address them with a bigger picture building approach. So we have a dedicated team. And if you recall, beginning of the year, we also mentioned that we were, let's say, reversing decision on the entity we had in Austria called FAM, VAM, that had been an entity held for sale. We then reversed the decision in order to put FAM right in the sweet spot or in the center of driving those turnaround projects. So the effect that you are expecting to see will materialize in 2019. 2019 will be significantly higher than 2018 and 2017. And 'twenty will also be higher than 'eighteen but maybe not quite as high as 'nineteen. So that gives you kind of a shape of the turnaround business coming our way. And I think we're well positioned to deal with that, certainly much better positioned than we had been in the last couple of years. If I'd answer that question, I'd move on to your second question regarding the scrubbers. It's a fascinating market, and I urge you to read the HSBC report. I'm sure Mr. Court can give you a copy of that. According from memory, 53,000 ships out there. That's a lot of ships. When surveyed, 68% of the people said they would switch to low sulfur fuel, 21% said they would switch to scrubbers, 21% to 53,000. That's a very big number. I don't even want to articulate it. But the target is that, reasonably speaking, 1250, so a little bit over 1200, would target scrubber solution. Assuming, of course, that the marine industry, the shipping industry is cash flow positive, that they have money on the accounts to pay for that CapEx. That being the case, I think we're one of maybe less than 10 providers. We think we can do currently 50 a year. That would be 500 tops on the market. So you see the economics speak in our favor. And our target capacity, given the fact that this is a wave that's going through, it's not an infinite business, but it's a wave going through, our target capacity is roughly 100, up from the current 50 that we have today. Your third question around digitalization, the risk from competition with IT incumbents, I think it's very flattering that they say we're moving into our business. As you recall, we are in the digitalization business because of the fact that we're in the process business. We're the people on the ground inside of the customers' process facilities. We've been there a number of years. We know their plant. We know their requirements. And of course, when you're trying to anticipate or predict and prevent planned performance, then we're the obvious company to turn to. We, in turn, look at partnering. We don't want to reinvent the wheel. So a lot of these facilities already have a DCS system in place, a distributed control system. It can be a Siemens, it can be Yokogawa, it can be a Honeywell. We take those systems. We work with them. They can have an IT system in place. It can be an SAP system. It can be an Oracle system. We take what's there and work with them. We combine the 2 of them together. So the OT, the operating technology and the IT technology, we put it into a cloud. We accelerate the speed where in the cloud by using things like Trumulocity with our partnership with Software AG. We bring in Siemens and Comos to help drive the digital twin. So really, we're the bridge builder, as we said a number of times. And the IT companies, if they work with us and work with our end customers, will, of course, profit from what we do. So we don't see ourselves as being a direct competitor. Rather, we're an enabler, I would say. The next question comes from Trevor Kuglitsch. Got a few questions as well. Just on the guidance. Obviously, I mean, at least arithmetically, it assumes or implies you kind of expect much lower pace of order intake in the second half, and I think also a little bit on revenues. I mean, obviously, we can all see the comparators getting a little bit harder. I just want to understand, is there something you're seeing that causes you to say this? Or is it more you don't want to change kind of fine tune guidance to that level of accuracy? And then of the €20,000,000 digitalization costs, can you just tell us how much you've actually incurred in the first half and where it's at? Because obviously, that's important for the phasing of earnings. And then maybe just finally on this on the comments you made on the scrubbers. Can you just tell us, I mean, in terms of revenues, what does this actually mean? What do you generate with 50 units per annum? Is it just want to understand the context of the wider group. Maybe I'll let Claus go first on the outlook and on the order intake, and then I'll pick up on digitalization. Yes. Could you tell you already heard what I tried to say. Basically, on the entries and revenues, globally, we kind of that did a little bit or gave a little bit more color on the guidance, right? But indeed, on the one hand, terms are getting copper. We have to also we are also still cautious because of the volatility of our project business. We had to also consider that the nuclear business is moving out into the Q1. But still, given all that, we basically verbally gave more color into the positive sense. In general, we also came to the conclusion that we rather update on guidance in the Q3 more comprehensively instead of doing that now. On digitalization and business development, you remember that we said an additional €20,000,000 Today, I said it will be shy of a little bit shy of that number. So we are rather talking between €15,000,000 €20,000,000 by the reason for me to say that, that indeed, in the first half, it was less than the €10,000,000 expense what we had. It was between €6,000,000 €7,000,000 something like that, and we expect that to a little bit accelerate, of course, due to the digital mix now. But all in all, I think it's according to plan. We have the people now on board, but it will be a little bit less in cost for the full year than originally planned. And with that, your question on the margins around the scrubbers is an interesting one because what we're finding what I'm finding is that this requires a little bit of a mindset change. We've been used to low margin business. We've been used to project business. And this is moving towards it's not quite a production line. But on the if I take the 40 scrubber, the orders we took in, there are actually 3 basic models in that lineup. And if you then say, okay, you have 3 basic models, how do you then drive down costs? And of course, the costs are it's modular approach. It's purchasing success. And we're even looking a bit further as we try to decide where to expand our production facilities. We're, of course, looking at producing closer to where the customer requires these units. And where they do require them is actually in China and in the Middle East. So the refits, the retrofits in order to build in the scrubbers are actually taking place in shipyards in Asia and the Middle East. So we're saying, can we find, let's say, production facilities closer to those end markets, which will not only allow us to grow our capacity, but also take down our costs, yes? And then finally, of course, when you're in a situation where demand exceeds supply, which is not something we're normally faced with in Bilfinger, then of course, the question is how hard can you push on the margin side and take advantage of, let's say, window opportunity in the market. Having said all that, the portfolio that we took in are accretive to our bottom line. As we go forward, it means that we want to be doing well in excess of, let's say, 15% to 20% gross margins, but we have yet to land such projects. And of course, the appetite of our competitors will also be a factor in that. But we think this is the right time to do so. And again, it's a fun challenge pushing the organization to think more to the to think multiple versions of a single unit and of course, and to think of significantly higher margins. Next question comes from Oliver Trucaut. Yes. Good afternoon. Concerning the recovery in your profitability, moving forward, what kind of stress or risk do you see on this way? Maybe I can just ask you to elaborate on the question. So it's risk on the profitability. Is that what you're asking? Or specific risk on projects and technology or markets and customers. Well, let me just start on what the I mean, on the recovery of the profitability at this stage, where you see the main risk of not reaching the targets which you've given in terms of time stamp? Look, if I can begin and then pass it to Plauz to underline and conclude my statement. When looking backwards, we had profitability issues around capacity utilization, around project execution and then around certain breakaway markets such as conventional power generation in Europe. So I think when I look at the conventional power industry, we're close to having turned that around in terms of exiting from the industry. We've sold the loss making entities that were a drain on our cash position, on our balance sheet and on our resources and management attention. We've been able to focus more on what works, such as the emissions going forward, focusing on nuclear, which will come to fruition once and I'm very confident there, but of course, only the customer decides once we get our first larger order intake from the UK on their new Peterbilt project. And then, of course, the big one has been project execution. So this time last year, we were sitting here trying to explain why we had put in place all these project governance, not only being selective but also being careful in execution, while we had a legacy project. I would say that is to 99% behind us. Now things can still happen, but I think recognizing, reducing, eliminating and managing risk is number 1. Number 2 is capacity and number 3 is being in the correct markets, avoiding the wrong markets. And then I would ask Claus to round up on that. Yes. I think that was already pretty comprehensive. Tom already said that at the moment, we have tailwinds in some of our markets, right? And oil and gas is doing good. Petrochemically is doing good. We see in some of our markets that basically we now the deferred maintenance is coming back and so on and so forth. So I would say the key risk to our target is that there is a sudden change in the overall macroeconomic environment, which would make our customers be, again, more cautious. But at the moment, they are in the process of opening their pockets, right? So that is the one thing. Of course, there is also opportunities if you talk with these opportunities. We talked about digitalization. I would think that is something which is actually that will come irrespective of the economic situation, which is just a must. So that will be definitely something which is positive. I think SG and A, that is in our hand, and I think we are making progress. I would not see that as a risk. The challenge, if you will shift the numbers, is more on the gross margin side, And that is here, on the one hand, balancing growth with risk appetite and on the other hand, playing the mix game. As Tom said, moving into higher margin areas that could be regional, that could be in certain industry. But all in all, I think it is still quite a way to go, but the targets are achievable if we basically follow through with the action items and plans we have defined. Okay. And concerning the capacity utilization, could you quantify it in EMT? Well, capacity utilization in E and T, I would say that I cannot give you an overall number. It's more in different companies, a different play. We have partners in ENT, which are kind of fully loaded, yes, but companies which are working on the engineering side in the chemical industry, for example, in Germany, but also in France, I would say, where they're also doing work in the nuclear industry. Therefore, we have only underutilization in some specific companies. 1 would be in the ex power in the ex power company in Germany, where, however, the scrubber business will kick in. And on the other hand, we now landed the first order in cement. So here, I think it is something where we have underutilization now, but we hope, given these two topics I just mentioned, that at least the downward trend in capacity utilization will be stopped. And the other thing where I'm quite confident is that in the United States, in our engineering business, construction business, there is still underutilization because we kept our core resources despite the downturn. But if you look at the orders we have communicated, and I guess there is also more to come, that is something which will only this underutilization will still be for the full fiscal year, but it will significantly ease in the quarter in the Q1, I would say, in 2019. The next question comes from Robin Maxwell. Hi, good afternoon, gentlemen. Just sort of three questions. And the first one is because I'm sort of only a part time water bill thing at the moment, sadly. Just on the Linde contract that you won in the U. S, you just mentioned in the call a figure of 100,000,000 dollars but the project value was $675,000,000 Can you just clarify to me exactly how much of that $675,000,000 is available to Bilfinger? Okay. I just want to get my points to getting my figures straight on this one. Yes. I mean, rounding off, let's say, a quarter of that value is available to us. The way the project is structured, there's the customer, then the next level is the EPC, engineering, procurement and construction responsible party, that's Linde. And then Linde, they outsource that construction work. So the engineering, they didn't sell, not the procurement, they didn't sell, but they outsourced that construction work to 2 major companies. 1 does the civils, and the civil in this case is quite complex. It's a lot of pile driving. So essentially, you drill holes in the ground. You fill them with cement. So you're creating columns, if you like. Then you excavate the earth, and then you fill in the excavated earth with cement to create a solid foundation on which to build the plant. That's one contract. We don't have that one. We didn't want it. That's lucky, I should say. The second one is the mechanical construction. So this is all the piping work. This is where we excel. This is the contract we do have, and that can be, like I said, up to a quarter of the number you mentioned. Okay. Okay. That's useful because I hadn't appreciated. And then just coming back onto the scrubbers point and just looking at the 12 50 ships that are identified by the HSBC report, Is that 1250, is that does that number come from as a result of legislation at a local level or as a result of the type of ships that can be fitted with this? Or what's capping that figure at 1250? Or is there much more potential to go after that? Yes. It's I mean, I could add to the HSBC colleague and ask him to answer your question. But the report is actually very well written, so complements again to HPC. It creates scenarios along freight rates, what are the day rates on shipping. It creates another dimension of the scenario on regulatory issues, how strongly they are enforced. And with this 4 quadrant scenario, it drops into numbers, yes? So I would say there's still assumptions behind that. But of course, the upside is much higher. The downside is much lower. But it's a fair number from what I've seen in the market. And of course, cash flow of the fleet owners and how strict the various enforcement agencies actually monitor the process will be the real determinant of that ultimate number of scrubbers going out there into the marine environment. Okay. Okay. And the CapEx that you're going to have to put in to double your capacity is what figure? It's minimal. It really is minimal because most of our when you look at what we do, we're buying raw material, we're assembling and engineering. We're not looking at robot driven production lines or anything like this. Okay. Okay. And then just sorry, the last question, I got disturbed during the you were answering my former colleague, Mr. Cretalo's question on digitalization and the software AG tie up. Did I get the impression that that's running slightly behind schedule? No. Can you just repeat what you said there? No, quite the contrary. I mean more, but Catra was asking about, let's say, rumors that we've heard from the IT companies that we were moving into their space or they were considering moving into our space, the thrust of my answer was that we're complementary and in no way antagonistic. So we're the we put pieces together. We don't develop a lot of software. We do develop learning behind the algorithms, algorithm training, as it's called, in the digitalization world. And we actually are enabler for companies like Software AG, that's our partner, like Microsoft, another partner. They provide the Azure cloud and the security around that cloud. Comos, Siemens is a partner. So we actually partner with these very same companies and we help them to do more business. And the sorry, I wrote down €15,000,000 to €20,000,000 as a figure that was mentioned around that discussion. What was that referring to? Yes. That was referring to it's essentially a start up within Bilthinga. So we gave it a separate entity, so Bilfiger Digital Next. And we gave them a 2 year opportunity to lose money, if you like. We think across that 2 years, they're going to need €15,000,000 to €20,000,000 to fund the start up essentially. And then we think they're going to be accretive, in other words, generating positive returns as of year 3, which would then be 2020. Okay. So thank you very much. We now conclude our Q and A session. For any further questions, Robin, please contact us and everybody else as well. So thank you very much and goodbye.