Good morning, ladies and gentlemen, and welcome to our Analyst Investor Conference call on the first quarter of fiscal year 2018. As we will hold our AGM today, we have to start our Q1 call very early. Thank you very much for joining us. On the call with me are Tom Blades, CEO, Klaus Patzak, CFO, and Michael Bernhardt, CHRO. We will start now with a short presentation. With this, I would like to hand over to Tom Blades.
Thank you, Bettina, and likewise, good morning from myself. I think you will see the headlines. We're very happy with orders received in the first quarter. It's actually our fourth consecutive quarter of growth. That book to bill 1.2, I think you'll see it's pretty impressive. Of course, there's a lot of year ahead of us, we're being cautious going forward. Revenue, slightly down absolute. When you look at the organic numbers, 1% increase. I think there also we're tracking well. EBITDA, still negative. Much improved on last year, I think we're on track. Not quite where we want to be. I think we can see ourselves on the way to turning around also the bottom line. Operating cash flow, I think seasonally driven, a little bit below the prior quarter of last year, which was actually very good.
Based on that top line performance, we do confirm our outlook for 2018. Very briefly, the markets. I won't go through the slide in the interest of time. We are seeing a pickup in activity in the U.S., downstream that is. Projects are being dusted off and taken off the shelf. We have quite an active, let's say, dialogue session with our customers on a number of projects. You would have seen yesterday, we announced a project we won actually in the second quarter, for Braskem, which is an example of that. In the Middle East, we also see increasing dialogue with the customers. They're not quite as far as the U.S., they are engaging in engineering contracts, feed contracts, early stage contracts. I think you will have seen the announcement by ADNOC to invest EUR 45 billion downstream in the UAE.
Again, an example of what's happening. I think what we're seeing in the U.S., we're going to see in the Middle East. In terms of maintenance, MMO, Europe is still very strong. That's driving also our order intake, as you'll see when Klaus goes into the details. Generally speaking, energy and utilities are still weak, although signs are good for nuclear. As we go forward, again, I'll just reiterate, we're relatively confident on being able to make our forecast for the remainder of 2018. With that, and in the interest of time, I'll hand it over to Klaus.
Thank you, Tom. Good morning, everybody, and thank you for joining this call early in the morning. I will focus on the most important aspects of the first quarter results before we start our Q&A session. We start on page six, and you can see the positive momentum in orders received, which continued now for the fourth consecutive quarter. Both segments showed a double-digit increase, leading to a book-to-bill of 1.2 for the group. In MMO, we have seen an especially positive development in Continental Europe, supported by catch-up effects in framework contracts. In E&T, we got significant contracts in all focus industries, and we have further tenders in the pipeline, as Tom just mentioned, which will support our growth path going forward.
After having sold almost all dilutive Other Operations units and after having reallocated funds to the core business, Other Operations does not fulfill the IFRS requirements for a separate segment reporting anymore. Therefore, we have included the remaining four entities in headquarter consolidation Other, but still show them as their off column to remain transparent until we have fully divested these businesses. Regarding the accretive OOP, Other Operations entities, we have just initiated the sales process for our transmission line business, FRB, as well as for the entity called Gerätetechnik. Turning now to page seven. For the third time in a row, the quarterly revenue increased organically year-on-year.
Nonetheless, the first quarter is typically the lowest in the course of the year, partly due to the weather, as we work mostly in the Northern Hemisphere, partly due to the fact that the year often starts with a planning period for our customers. EBITA adjusted was negative. However, we saw an improvement against the prior year quarter. In E&T, there is still low utilization in some European ex-power units and also still low volume in North America, which burdens the margin. Nevertheless, there was a clear improvement against prior year, and we expect continued growth in orders, especially in nuclear in Europe and in petrochemical in the U.S., which will improve capacity utilization in the coming quarters. In MMO, the first quarter of the year is typically the weakest, with a stable 2.1% margin year-on-year. Burdens from special items decreased to EUR 5 million.
Our full year expectation of EUR 50 million is unchanged. Looking at some P&L details on page eight. Gross margin came in at the prior year level. A positive development in E&T was countered by burdens from low utilization in Other Operations, especially in South Africa, which we expect to be temporary. SG&A expenses were below the very good fourth quarter of 2017. However, we see a positive underlying SG&A trend, and moreover, we achieved a structural improvement by increasing the share of selling activities within SG&A. The communicated additional costs for digitalization and business development were small in the first quarter, but will increase throughout the year. Please keep in mind that they are not part of the adjustments. Overall, we expect this year's SG&A ratio to improve against last year despite these additional expenses. On page nine.
Operating cash flow came in negative, in line with our typical seasonality. Operating cash flow was below the prior year quarter due to various reasons. First and foremost, first quarter 2017 was strong after a weak fourth quarter 2016, therefore, the prior year quarter represents a tough comparable. In the current fiscal year, some cash inflows came in early April, as the last days in March were at the Easter weekend. We have also seen some additional need for working capital due to the growth in MMO, as this business typically requires additional working capital. While the order entry growth in E&T has not yet led to higher advance payments, which are due when mobilization starts. Cash flow will improve during the year, and we will deliver on our target of free cash flow adjusted to be break even for the full year.
The still negative net profit improved due to a lower burden from special items. This will be also the case for fiscal year 2018. With this, I conclude my comments on the financials of the first quarter 2018 and hand back to you, Bettina.
Yeah. Thank you very much. We start now with our question and answer 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. To withdraw your question, please press zero and two. I repeat, to ask a question, please press zero and one. The first question comes from Gregor Kuglitsch from UBS.
Hello.
Hello.
Hi, good morning. I guess my question is around what you're seeing in the margins of your new orders. Obviously you've had a very strong start, 20% odd order intake growth in the first quarter. Obviously, yesterday you came out, I believe that's EUR 200 million for Bilfinger. I want to understand, are the margins that you're able or that you obviously hope to achieve when you're bidding already consistent with your midterm targets, or is this sort of only going to start building up over the years as the markets tighten?
I'm happy to take this question. First of all, if we not only look at one quarter, but at several quarters, we see a positive trend on the margins in the order entry. Obviously, also the margin on the order entry is higher than our gross margins because, as I mentioned earlier, in some entities, we are still not fully loaded. What is also important that in the past we had quite often a situation where we took in an order at a certain percentage, and then in the end, when we closed the project, the profitability was lower.
In the contrary now, after we have invested quite some time and effort and brought new people in, we believe that we will see more often cases where we can increase the margin, compared to the order entry margin, because we have improved our claim management and contract management. I think we are moving in the right direction, but it's basically, the profitability on the individual order and then the higher volume, which is specifically in the U.S. and also in South Africa, as I mentioned, but also in some companies in E&T in Europe, which will help us then to bring the gross margin, which is, as you have seen currently, still below 10% up to a level of round about 12.5%, which we mentioned as target in the February Capital Markets Day in 2017.
Okay. The second question is, obviously you're not changing your full year order intake guidance of +5%. I understand you don't want to get sort of overexcited after one quarter. Obviously you've got another EUR 200 million coming in in the second quarter with what you just said yesterday. I want to understand what's holding you back from increasing that guidance. Is it simply you think it's too early?
No, I think if you look at our order intake last year, we actually had roughly 55% of our order intake coming in in Q3 and Q4. Very strong finish to the end of the year. We're mindful of that as we go forward, therefore, kind of beating our chest on the first quarter results is nice, really comparing ourselves to a much stronger Q3, Q4 is what it's all about, that's why we're careful on our guidance.
Okay. Very clear. Thank you.
The next question comes from Jasko Terzic from Bankhaus Metzler. Herr Terzic, [Foreign language]. To ask a question, please press zero and one. There are no further questions at the moment. If you want to ask a question, please press zero and one. Mr. Terzic, we can wait. Oh, he's coming back. Okay. The next question comes from Jasko Terzic from Bankhaus Metzler.
Yes, sorry for that. My question was regarding the visibility of the pipeline, regarding the end markets, particularly chemicals. Do you already see some kind of stabilizing good demand, or do you still see some gaining momentum there? Also regarding nuclear, could you give us some more details? What is coming along the road in the running fiscal year?
Sure. I can give you some details on the outlook. How much of that materializes is up to the customers. Generally speaking, in industry, I think chemicals, we're seeing expansion in the U.S., driven again, as we've said quite often by shale gas. The project we just announced is an example of that. That's actually happening. The project's materializing. There's a lot of construction work, especially in the Texas, Louisiana region, so Gulf Coast, that is actually work in progress. It's expansion that's real. In the Middle East, we see early signs for additional expansion. The announcement by ADNOC is an example where they want to invest in developing the Ruwais area. Ruwais is where ADNOC has its Borouge JV. It's where Borealis is active and I think that again signals investments in downstream chemicals and further capacity expansion.
In Europe, the picture is more of a, let's say, brownfield scenario, where the operators are satisfied with the, let's say, quantity, the output from the facilities, but not yet with the efficiencies. There we see further investments in turnarounds. We see investments in emissions in terms of addressing more stringent emissions, and generally speaking, making sure that what is already in place is working more efficiently. To your question on nuclear, there is still not a final decision from the projects in the U.K. The front runners there are Hinkley Point and Wylfa. We are engaged with the customer on that. We do understand that we're in the final running, but we don't expect to hear a decision from the customer until late Q2, early Q3, on the first of the projects and probably towards Q4 on the second of those projects.
If I may add on chemicals in Europe, I think we are seeing quite good momentum both with regard to smaller projects, the bottlenecking, right? We basically see that at least some of our customers are reaching capacity limitations. That basically shows also in our MMO order entry for the quarter.
Okay. Thank you. Maybe also on your digital business, is there anything worth mentioning after your milestones you reported last time in terms of new contracts, new interests, new customers in front of you that are close to contracting such kind of demand for digital solutions?
No, I think we have three ongoing projects. One, they're in completion. Two, we're right in the middle. We had a, we call it a digitalization day, a few weeks ago at Münzing Chemie. This is our first project in Heilbronn. We had roughly 45 people in the audience. It was well attended, mix of press and customers. On the back of that, we are getting a lot of inquiries. Our team is very busy. They're trying to find time to visit the customers. Demand is strong. Curiously enough, the digitalization day we held in German, we're trying to catch up the same in English. I think what we have is fitting into not only a market niche but also a market gap. I think you'll see more of that when we do the Capital Markets Day in June.
We expect to be showing real-time some of the things we can do when we are at the ACHEMA. I believe the analysts and yourself probably will visit, and you'll see some more of that. I think you'll be able to see the interaction with our customers while they're visiting the trade show.
Okay. Thank you. My last one is on your buyback. Is there anything to add due to the fact that we are approaching well? I think you have not yet committed to cancel those shares. Could you give us an update here?
Yeah. I'm happy to do that, but there is not a lot to say, Herr Terzic. Because we are approaching now 60% and it's in the hand of a bank. I expect that this program will run through the end of the calendar year. We are still stay to the decision we communicated earlier. The shares will not be canceled for the moment. So there is no news on that. It's running just as planned.
Could you remind me on your rationale behind not have the intention to cancel it? Is there anything you plan with it? Do you see an opportunity for M&A where you can use it, or what is the reason behind that?
No. I think it's quite common that companies buy back shares and not immediately cancel that. I know one company who hold treasury shares for years without having any specific plans. It's more the general flexibility we want to have, at least for the time being. There are no specific plans.
Okay. Thank you.
There are no further questions at the moment. If you want to ask a question, please press zero and one. Next question is coming from Wolfgang from Berenberg.
Hi. Good morning. Thanks for taking my questions. Just a very quick one on the working capital, please. It seems you have to put up some working capital requirements as your top line grow. Can you comment on the trend? Is that something that you expect to continue in the future as your revenue grow? Thanks.
Yeah. The working capital, first of all, if you look at the balance sheet, you have to make the impact of IFRS 15 and IFRS 9 comparable. That has an impact on the receivables, on work in progress, but also on prepayment. If you strip that out, we actually see that the prepayments received have come down. You see that only if you strip that out. We expect here that over time that trend is turning when E&T is coming back to revenue growth. Therefore, these new projects come into mobilization phase. On the orders receivable, we have a quite significant impact of IFRS 15. That's a one-timer here. We expect here that this will normalize all in all.
I think we will see in the next quarter an improvement, which will lead us then, as I mentioned earlier, to a free cash flow adjusted positive for the year. My expectation is that we already in the second quarter, we see some kind of an improvement there.
Thank you.
Next question comes from Markusoblast from Banco Santander.
Yeah, good morning, everybody. I was a little bit late. Just on the order you received yesterday, that's not included in the current order intake. Is that right?
Yes. That's right. That's a second quarter order.
You will not elaborate a little bit more on the volume of your share to that order?
Well, I think it was already hinted at that we are talking about a low three-digit million euro order entry.
Okay. Thank you very much.
There are no further questions at the moment. If you want to ask a question, please press zero and one.
Okay, we conclude our Q&A session for today. Thank you for your time and talk to you soon. Bye-bye.