Restructuring plans Bilfinger to Sell Water Unit

The stock price has hit bottom and the books are in the red, but Bilfinger boss Per Utnegaard is now cleaning up – and plans to sell the company's water business.
Bilfinger was tasked with building a Cologne subway station but things didn't go as planned.

These days at Bilfinger, the meetings start early – and one follows the next.

Ever since Per Utnegaard took over the leadership of the stricken engineering and services group in June, he has been hard at work to reverse its fortunes.

Bilfinger has issued six profit warnings in the past years; the company has posted high losses and investors have lost faith.

Now, Mr. Utnegaard, a Norwegian, and the new chief financial officer Axel Salzmann, are trying to get the tradition-steeped company back on track.

The two are working to complete a new strategy by mid-October.

What is already clear is that Bilfinger will be pruned back to its core business. The leadership duo decided to split from the energy business and have explored other partial sales too.

Now, the water technology division is up for sale and according to a financial source, Bilfinger wants up to €300 million ($333 million) for it. The source said the company may also sell other divisions too, as it needs the money.

Bilfinger only revealed that all options are being looked into for the water technology division.

The power division offers good expertise for companies in emerging countries, where many coal-fired power plants are still being built.

Yesterday, the company's mid-year results presented another major blow: Massive write-downs brought the group to a net loss of €439 million.

Mr. Utnegaard didn't make any bones about being in the red. “Without question, I started at a difficult time,” he said.

His goal is to return Bilfinger to its original strength – no more shocks, bad figures and nasty profit warnings. That's the order from its major shareholder, financial investor Cevian, which owns 26 percent of the company.

Cevian wants the worst to be dealt with by October and a viable plan put on the table, according to a source in the investment company. Each division is currently being assessed for future viability. “We will do more with less,” Mr. Utnegaard said.

 

Bilfinger at a Glance-01

 

Cevian is the driving force behind the reorganization at Bilfinger. The Swedish investor is an active shareholder, getting submerged in the strategy and realignment in many of the companies it is involved in. That is highly likely with Bilfinger since in the last few months, practically all decisions have been made at the urging of the financial investor.

Cevian is also well represented on the construction firm's supervisory board, the non-executive board that hires and fires chief executives and confirms major decisions. Bilfinger's next steps are being clearly shaped by Eckhard Cordes, the head of the supervisory board, and Jens Tischendorf, partner and director of Cevian Capital.

Mr. Utnegaard and Mr. Salzmann are carefully coordinating their approach with Mr. Cordes. Cevian brought them both on board and the financial chief is an especially important confidante for the Swedes.

Mr. Salzmann also has the key role of making the reporting system in the company watertight and uncovering all remaining risks. It isn't new to him; Mr. Salzmann gained experience working with financial investors from the media firm ProSiebenSat.1, long owned by private equity companies.

In the early months since taking on the post in April, Mr. Salzmann has focused on the energy business which constructs and maintains power plants. The division has 11,000 employees, and posted revenues of €1.45 billion last year.

But numerous risks lurk in the project-based business; as energy companies themselves need to make savings, they are reducing maintenance to a minimum. Plus, barely any new power plants are being built these days, and contracts are being cancelled, due to Germany's transition to renewables.

There are other problems too, including internal errors and glitches in project management – company sources say there have been too many of these in the energy division. Cevian and the new chief executive were shocked when Mr. Salzmann brought the additional risks to light.

Mr. Utnegaard pulled the plug, putting the power division up for sale. The company hopes to gain €750 million to €1 billion, according to sources in financial circles. Expert calculations say the division is worth €500 million.

Within the company, opinions differ on how likely the sale of the division is. The power division offers good expertise for companies in emerging countries, where many coal-fired power plants are still being built. But it is strongly focused on Germany and Europe and others argue that the bleak prospects in that region mean it will be hard to attract buyers.

Mr. Utnegaard is taking control of Bilfinger's largest division which operates and maintains industrial facilities. Right now, it is suffering greatly due to low oil prices.

Mr. Utnegaard’s predecessors were likely too optimistic when it came to additional purchases. But for now, the mood at Bilfinger reportedly has improved – employees are more optimistic about the future because there's a strong manager at the helm.

 

Robert Landgraf is the deputy head of Handelsblatt's finance section and is based in Frankfurt. Martin Tofern is an editor with Handelsblatt's news desk in Düsseldorf. To contact the authors: [email protected]; [email protected]