Welcome to CEO Torben Kleinfeldt and CFO Tim Hameister, who will start with the presentation shortly. After the presentation, we will move forward with the Q&A session. With this, let's start. Mr. Kleinfeldt, the stage is yours.
Thanks a lot for the introduction, and also a very warm welcome from my side to the Q2 earnings call of Friedrich Vorwerk Group SE. My name is Torben Kleinfeldt, CEO of Friedrich Vorwerk Group SE. With my 25+ years of experience in our business, I think I can say that I've not seen such interesting times in my business life as we have at the moment. That's why I would really like to start today's earnings call with market updates, and then later on, hand over to Tim, who will introduce himself later on as well. And I think he has probably the best news of today with our financial figures of Q1 and Q2. And I will finish the earnings call with a short update on current projects and current trading.
So, yes, as we've heard a lot about the electrical grid in the former earnings call, I would like to focus in this earnings call on the pipeline business, so natural gas, hydrogen, and of course, district heating, because there's a very fresh update from the German government on the TSOs. So the natural gas operating TSOs, which are the same entities as we build up the hydrogen grid in Germany, have just applied on 23rd of July at the German government for the permit to build the what is called the start grid of the hydrogen network. You can see on this slide the first start grid of hydrogen that will be finished in Germany by 2032.
The grid will comprise of almost 10,000 kilometers of mostly large diameter pipelines. 40% of that new hydrogen grid will be new built pipelines. Roughly 60% of the start grid will be converted pipelines, so converted from natural gas to the use of hydrogen. Investment for the total start grid of hydrogen will be roughly EUR 20 billion over the next 10 years. And we have already started on the first conversion project for Gasunie this year. So, the infrastructure towards Denmark is already made ready for hydrogen, and is finally converted from natural gas to hydrogen.
So we will see a lot of work coming up here over the next years in the pipeline division, and it will definitely keep us occupied with our pipeline construction divisions until the middle of the 2030s. But not only in natural gas and hydrogen, we'll see a lot of work coming up, but also in the field of district heating. As you have heard, Germany has passed a law to decarbonize the building sector, mostly in the big cities of Germany, and the best way to do this is, except using heat pumps and using a lot of electricity, is of course using district heating and bringing industrial off heat or heat that is produced by regenerative sources and bring it to all the households by means of district heating grids.
So you can see, in the graph on the left-hand side, the studies by Prognos, which is the rough investment volume for the build of new district heating grids. So in the 2020s to 2030s, there's an estimated volume of roughly EUR 40 billion of investments in district heating, and it's estimated to almost double in the next decade. So this will be a lot of work, especially for our crews that are familiar with the inner construction, inner city construction, handling and pipe works, to be occupied at least until the 2040s. So this time, as I said, different market outlook with no electricity, but we'll come back to some electricity projects later on, and I would like to hand over to Tim for the financial performance of the first half year.
Yeah, thanks a lot, Torben, and I would also like to welcome you to our earnings call on the second quarter figures. I'm, yeah, very pleased to be able to present such encouraging figures to you today. To start off, let's have a look at our strong revenue development across the year. The second quarter of the year, we achieved revenue growth of 27% to EUR 117.4 million, and thereby delivering the strongest quarter in the company's history. Key driver of this revenue growth was the ramp up of our flagship project, A-Nord, which already made significant contributions to both revenue and earnings in the second quarter. Yeah, Torben will provide a more detailed project update later on this.
In addition, our recruiting activities were particularly successful in the second quarter, enabling us to record a significant increase in the number of employees, as well as a substantial increase in revenue per employee of around 18% compared to the previous year. For the first half of the year, this means a growth of 17% to total revenues of EUR 194.1 million... The trend in the segment development here that we've already seen in recent quarters is still continuing and is leading to a shift in our revenue mix. Projects in the natural gas segment now account only for 37% of our group revenue, while the share of our electricity segment doubled to 30% compared to the previous year. However, this growth is not exclusively attributable to A-Nord.
Our transformer station project, for example, also contributed to revenue in a double-digit million EUR range. Slight increase was also recorded in the clean hydrogen segment, where the first small sub-projects of future hydrogen corridors are already being realized at the moment. All the more pleasing, however, is the exceptional growth and profitability. We already initiated the turnaround in profitability in the first quarter, and have now continued this trend with full steam in the second quarter. With a 120% EBITDA increase from profitability growth, has outperformed the revenue growth significantly. We increased EBITDA to EUR 17.7 million in the second quarter, which corresponds to an EBITDA margin of 15.1%, an increase of more than six percentage points.
In the same period, we increased EBIT from EUR 3.6 million to EUR 12.6 million, and therefore, once again, achieved a double-digit EBIT margin of 10.7%. Accordingly, EBITDA for the half year amounted to EUR 24.4 million, with a margin of 12.6%. EBIT has almost tripled to EUR 14.5 million, which corresponds to a margin of 7.5%. So already announced in the last earnings calls, we've now completed all legacy projects from the years 2020 and 2021 in the first half of the year, most of them even in Q1, so that these projects no longer have a negative impact on profitability, as you can already see in the Q2 figures.
Instead, we worked with a large part of our workforce on new orders from the years 2023 and 2024, which were secured at significantly better conditions. Which leads me to our order intake, where we have once again demonstrated our competitive market position. Order intake in the first half of the year rose from EUR 318 million to EUR 408 million, leading to another record order backlog, EUR 1.2 billion as of June 2024. This significant increase in order intake is mainly due to the order for the realization of the land cable connection in the BalWin3 and LanWin4 offshore connections projects, with an order volume in a clear three-digit million EUR range.
Another major order comprises the realization of further parts of the so-called South German Natural Gas Pipeline, SEL, as part of a consortium with an order volume in the high double-digit million EUR range for the consortium as a whole. However, the electricity segment now accounts for more than 80% of the order backlog, and will therefore be the key growth driver in the coming years. Then, a look at our balance sheet date, at our balance sheet, which remains, yeah, very strong and relatively unchanged compared to December 2023. We've continued to invest also in the first six months in non-current assets, such as drilling equipment, cable pulling, and cable pushing equipment.
With roughly EUR 10 million CapEx, the second quarter was somewhat higher than in the previous year due to project-related effects, but we are still planning to reduce the CapEx in relation to revenue in the short to medium term. For seasonal reasons, working capital again increased compared to the end of the year. However, working capital management, which was one of the key priorities in the last few years, has already achieved positive results. Therefore, our net debt has been reduced, quite significantly compared to June 2023. And of course, as in the previous years, a clear positive operating cash flow is expected for the 2024 financial year.
Based on these excellent developments in the second quarter, we've adjusted our forecast as follows: We now expect revenue of more than EUR 410 million, which corresponds to growth of at least 10% compared to 2023. And in terms of profitability, we now expect earnings at the upper end of the 11%-13% EBITDA margin range, which would put us almost five percentage points above the previous year. With that, I hand back to Torben for the business update.
Tim, thanks a lot. I would say good news from your side and also some good news from the project. I'd like to start up with our major pipeline project this year, it's called the SEL project. Basically compromising of a new pipeline system connecting the area of Stuttgart towards the area of Munich. We have been executing the first lot, SEL 1, this year. This is a stretch of 24 kilometer, 48-inch pipeline that has been executed in the consortium between Friedrich Vorwerk, Bohlen & Doyen, and the HABAU. The project has almost come to an end for this year, so the main building activities are finished.
We are still busy with the tie-ins and with the reinstatement of the track, so that the SEL 1 project will be more or less closed by the winter. Besides that, we have been awarded the SEL 2 project, comprising of three lots with an average of 11 km each, will be executed as it looks, maybe starting already this year and main activities in 2025. SEL2 is only a 14-inch pipeline, so it's one dimension smaller than the pipeline we are constructing this year. But since we have 43 km to go next year, I think we will be able to also run our newly developed welding system on this project.
We are looking very forward to it, to continue work on the next spread of this pipeline, which, of course, saves us a lot of transport costs because the main construction equipment is already in BalWin3, and it can be just shifted from SEL1 to SEL2 without any further transport costs. A second project I would like to focus on is our BalWin3 and LanWin4 project. Project that comes from the cable side of us, also from the electricity side of our business. The project has been awarded by the customer next month, so the cable producing entity finished for that, with Bohlen & Doyen will be responsible for the onshore part of the whole project. It's a 45-kilometer cable stretch, which runs the BalWin3 and the LanWin4 project more or less in parallel.
This year, pre-construction phases already started, so we are busy with working out all procedures that are necessary to do the later construction. Also, make definite plans about the horizontal directional drillings, which will be a major part of this project. Construction will probably start in 2026, with commissioning of those two cables in 2031. But besides this new cable project, also our existing A-Nord project has really kicked off. So, we are at the moment working with four major crews on this project, and, as it looks at the moment, the customer is able to supply a sufficient right of way to keep all crews occupied for the rest of the year.
I think, which will lead us to an estimated revenue distribution, as we have shown before, with revenue more than EUR 100 million on this project for this year, and peak of the work in 2025, with probably revenues with over EUR 200 million in 2025 just on the A-Nord project. Please remember this A-Nord project is more or less a cost and fee project, with a later on bonus and malus. The bonus will be paid on time, costs, and quality, and of course, the same is true for the malus if we are not staying in the estimated budget and not staying in the agreed timeline.
As you can see, we require a lot of new human resources for all of our projects, not only for the cable project, but also for the pipeline projects. I think all the measures we have taken in our human resource department are now paying out. We were already able to gain employees, so grow the number of employees by 7% in the first half year of 2024. I think the June figure, July figures are already pointing also in the right direction, so we might be able to gain more than 10% new employees by the end of the year. And I think most of the efforts we did, especially to get foreign employees on board, from outside EU and also from other EU countries, has really paid out.
We are able to staff most of the projects now with our own personnel and of course, as always, with our own machinery. That's it also from my side. We'll be ready for your questions and, yeah.
Thank you so much-
Sorry.
Thank you so much for the insightful presentation. And yes, we're now ready to go to the Q&A session. And to keep the conversation engaging, we kindly like to ask you to post your question via the audio line. To do so, you can just click the Raise Your Hand button. If you dialed in by a phone, you can do this with the key combination star nine, followed by star six, or you can also use our chat. And we have a first hand-raising from someone that is dialed in by a phone. Could you please say your name and then ask your question? Thank you. You should be able to speak now. You can also use the chat if you want to ask a question. We don't have any further questions, so we're gonna give it a little bit of a couple of seconds.
There's another one, Lasse Stüben from Berenberg. You should be able to speak now.
Hi, good afternoon.
Thank you so much for waiting.
Thank you. My main question would be around sort of how to think about your revenue distribution in the second half of the year. I mean, you, you had a good first six months, you raised guidance. So I'd just be curious to know, you know, is it mainly gonna be electricity that's driving the revenue growth in the second half of the year, or are there some other bigger projects maybe in, you know, as far as I know, I think your district heating projects, the larger ones, are pretty much finished. But just to get a feel for revenue distribution between the segments in H2, that would be useful. Thank you.
Yeah, hi, Lasse. So the main growth driver in the second half of the year will be indeed the electricity segment. As I said, we have now, as of June, a backlog of 80% electricity projects. However, you are referring to our district heating projects, for example, in Hamburg. There are still a lot of work to do, also for this and the next year. So this will be also a significant revenue contribution in the second half of the year. But, again, as you see, the revenue mix in the first half of the year, the trends in the direction of electricity will be still there in the second half of the year.
Okay. And then maybe just a similar question on profitability, I suppose. You know, we've seen a very—I guess the, you know, the first phase of A-Nord has already been quite profitable. So I'm just wondering how that kind of looks going forward. Should we see Q2 as a reasonable level to expect going forward? Or, you know, how should we think about the phasing of the profitability, particularly in the bigger projects?
I mean, especially with A-Nord, Tim elaborated on this. This is a fixed fee plus a fixed cost plus fee contract. Therefore, this will bring a lot of stability, also going forward into the profitability. We did not reflect any bonus payment or something like this in the figures, which will be only determined at the end of the project. So therefore, we just show the base margin over the next two years. And in terms of the group margin, I would expect that the margin of the first half will also be a good assumption for the second half of the year.
Okay, thank you.
Yeah.
Yeah, thank you so much, Lasse Stüben, for your questions. We have another question from the chat, from Pamela Stenger-Tismer, and thank you so much for the presentation. Please expand on the potential opportunity the fair value sees in the DH segment.
Could you please repeat the question?
The question is, please, can you expand on the potential opportunity the fair value sees in the DH segment? Let's see, I think I have there.
What is meant with DH segment?
District, district heating.
Okay. Well, we do see numerous projects coming up in district heating, especially in the big cities where our branch offices are located. So, we are definitely focusing on cities like Leipzig, Halle, Hamburg, Bremen, and also Hanover, announced as the first big city in Germany that all new buildings need to have a connection to the district heating grid. So, there is already work going on in Hanover. We are executing for in our city this year. There's a tunnel because the design tunnel needs to be crossed, so this is a project we are currently working on in Hanover.
But we already know from all of the customers in these big cities that numerous other projects are coming up with also very big diameter piping to be installed over the next years.
Yeah. Thank you so much. We have another question: Could you please give us a feel for order intake in Q3?
As always, the order intake is a bit chunky in our business, so we never know if a large order intake is in Q3, Q4. So I think it is very hard to get an exact figure for Q3, but we are very sure that until the end of the year, there will be more order intakes coming in, especially in pipeline construction, so first natural gas and later hydrogen, but also from the electricity side, both cable projects and also transformer stations.
Yeah. Thank you so much. We received another question: Have you got capacity to take on more large projects, or is the focus mainly on executing existing projects for now?
I think we are confident to take on other big projects. We do see that we are able to win more employees, not only from the blue-collar side, but also construction management and project management. I think we were able to attract some employees that were occupied in the general building construction and engineering construction, which is downmarket at the moment in Germany. So, that might be good for our business, and we are confident to take on new projects as well.
... Yeah, thank you so much. Another question, what is the targeted working capital level for the end of this year?
Yeah. As we have some kind of seasonality here in the business, especially in terms of network and capital, our aim would be to have the same level of network and capital as we had at the end of 2023, even with higher revenues in 2024. This is mainly done, as I said, working capital management is a priority still, and this is mainly done by negotiating more out of prepayments also in the pipeline construction contracts.
Thank you so much. We received another question from Roland Konen, and you should be able to speak now. Thank you so much for raising your hand.
Yes. Good afternoon. Thanks for taking my questions. First of all, congrats to the very good figures. My question is an add-on on the A-Nord project. As I saw your smile in your face when you were talking about the A-Nord and the compensation scheme, et cetera, and I understood that you just book until it is finished the base margin, as you said. Is it up to now? I know it's two years to go. More likely that you will earn a bonus than a malus . What is your point of view on this topic?
Well, I think at the moment, concerning the timeline, we are right on schedule, so all crews are being occupied. Right of way has been handed over to us. So if Amprion is able to continue with this progress on right of way, I think we are definitely on the safe side concerning the timeline of the project. And I think also the budget for the works is still in the green field. So I do expect to earn maybe not the full bonus, but we are very sure that we will not end in the bonus regime, except anything changes dramatically on in the field of right of way.
Yeah, but it's fair enough. It's two, two years to go. That's, that's fine for me. Thanks. Thanks a lot.
Yeah, thank you so much for the question, Roland Konen, and also for answering. We received another question from the chat. If I calculate correctly, the full year revenue guidance implies a 4%-5% year-over-year growth in the second half of the year. Can you provide a bit more color on this, especially in the context of the very strong first half of the year?
Well, traditionally, the second half of the year, our business is always a bit stronger than the first half of the year, since first half of the year obviously includes January and February, which are very, yeah, let's say, bad months in our business due to weather conditions outside. And therefore, you typically have, like, between 5% and 20% revenue increase compared from H2 to H1. And given the order backlog, the record level, the EUR 1.2 billion, we are very, very confident that we'll be able to meet at least the EUR 410 million in revenue for the full year.
Thank you so much. And then we received another question from the chat from David Stüber. What share of backlog is from low-margin legacy projects, and when do you expect to have these projects fully phased out?
Yeah, the good news here is that we have, as of June, we have completed all of these bad margin legacy projects, and have now a very good composition on our order backlog with all the project wins we announced in the recent months.
Thank you so much. We received another question. Thank you so much for the presentation. VINCI released recently that they will work on the SuedOstLink project. This project was mentioned in your pipeline opportunities. Should we understand that you will not be involved in this one?
No, we have been asked by 50Hertz, which is one of the big TSOs in electricity here in Germany, for 3 lots in the area of Halle-Leipzig, which is directly in front of our doorstep in our Halle branch. So we are at the moment in the estimation stage of the project, handing in the first offers, I think, end of August. And then we'll see how negotiation phase goes on, and if we will be involved in SuedOstLink or not.
Thank you so much. Another question: Could you please elaborate on what percentage of A-Nord do you expect to complete during Q3? And could you remind us of the key projects you'll be working on throughout the year?
Yeah. As Tim already elaborated, the major district heating project in Hamburg will still go on, for this year and also for the next half year of the first half year of 2025. So that will occupy a lot, a lot of our inner city construction crews for another year. Then, of course, the SEL projects, SEL One and SEL Two will keep us occupied. Also, please keep in mind that we were not able to complete the reinstatement of the ETL 180, where we are still busy, probably not only this year, but also, we'll probably not be able to finish the reinstatement this year, so we will need to go back to ETL 180 also in 2025.
And then, of course, we will also ramp up another crew for the A-Nord construction in the beginning of September. These are, at the moment, the major projects we will be working on until the end of the year.
Yeah, thank you so much. I received another question. Within a growing market, how are your market shares developing compared to two years ago? If you could elaborate on this, please.
Hmm. It's always hard to say what our market share is, because we are active in very different areas of the market. So, if you look at the natural gas business, we did the exercise once during the IPO period. We estimated our market share in Germany to be roughly 25%. I think this is pretty much unchanged over the years. Looking at the grid development projects we are executing, I think this is always a good measuring point for our market share. For the electricity, the market is huge. So the latest grid development plan accounts to an investment volume of more than EUR 300 billion. But of course, it includes inverter stations, also above ground power lines.
To get an exact market share of the electricity market is, I think, very hard to say, because we are only active in underground cables and also in transformer stations. It is very hard to estimate what the market share of RWE would be in the electricity market.
Thank you so much for answering the question, Mr. Kleinfeldt. I received another question: Could you please tell us, do you need to further increase new workforce or shift resources to A-Nord project in the next months, as sales increase strongly compared to 2024?
Well, in the end, it will be a combination of both. There will be new employees being employed on the A-Nord project, but we will also shift existing resources to A-Nord, so that we have a combination of good and experienced crews and new employees on that project. I think for this, we can make sure that the works will be executed in time and also in the quality required by our customers.
Yeah, thank you so much. There's another question from the chat, but this is also a reminder for you. If you would like to ask a question via the audio line, please use the Raise Your Hand button, or you can do this with the key combination star nine followed by star six. David Stüber would like to know, EBIT margins seem to be very slim, but the segment is around 30% of the total revenues. How do you think about the segment strategically? What is the merit for the business as a whole?
I think the question is referring to the district heating.
Yes, to the,
Adjacent opportunity segment, right?
Yes, exactly.
Yeah. Okay. Well, there's you have to consider, looking at the segment reporting that at the moment, in adjacent opportunities, there are no earning contributions from joint ventures, which we do have in all other three segments, which have a positive impact on the EBIT margin level. But basically speaking, we are very happy with the projects we have currently in the adjacent opportunity segment, and we are, yeah, quite confident that also the EBIT margin in the next year will, will grow further and will, yeah, will get to the levels of our other segments, since we do not see any systematic margin difference between the, the segments at the moment.
Yeah. Thank you so much, Tim. We received another question from Lasse Stüben again, and you should be able to speak now.
Yes. Hi, thanks. Just to follow up, could you just shed some color on sort of the liquidity position in the balance sheet? I know it's not unusual in Q2 and you know, also Q3 because of the working capital seasonality, but it'd just be good to hear sort of what headroom you have in terms of liquidity should there be more working capital requirements in the third quarter? Thank you.
I actually expect that the working capital position will decrease in the third quarter, improving the liquidity situation. Apart from that, we also have headroom of roughly EUR 50 million in case it's needed, but I don't expect that we will need to use these credit lines.
Thank you so much for the answer. As no further questions have come in, we're gonna wait a couple of seconds more before we draw today's call to a close. No further questions have come in, so thank you so much from my side. Thank you so much to the leadership team for the inside presentation, answering the questions, and also to you for your attention. Should further questions arise in the future, please don't hesitate to contact us or the leadership team. With this, I'm gonna give the words for some final remarks to Torben Kleinfeldt.
Yeah, thank you very much. Also, thank you very much, everybody, for listening today. I think very interesting times lying ahead for our company, and I'm glad to be part of it at this stage. And I think we'll have some further good news at the end of the year. So stay with us, and have a good week. Bye-bye.
Bye.