corporate revamp

After a bumpy patch, Germany's Bilfinger tests new ground

Bilfinger
Mr. Blades hopes the third CEO is the charm. Source: DPA

In its heyday, Bilfinger was Germany’s premier construction company but bad management, bad strategies and a slump in orders plunged it into crisis. The company’s new-ish CEO, Tom Blades, said on Wednesday he would get the company back in the black next year – but as previous bosses have fallen short of such promises, observers had to wonder if Mr. Blades can possibly deliver. The latest approach, still in its early optimistic stages, is to focus on industrial services.

“The progress is visible and the operational steps forward are getting bigger,” he said, forecasting adjusted operating profit in the “mid- to high-level tens of millions” this year. In 2017, Bilfinger made a profit of €3 million thanks to modest gains in sales and new orders. The company is still reeling from a collapse in demand for power station construction, following the German government’s decision four years ago to phase out nuclear power by 2022. Bilfinger has since sold its profitable construction and real-estate businesses as well as around a dozen loss-making subsidiaries.

Mr. Blades, a Brit born in Hamburg, took the helm in July 2016 to complete the restructuring of the group. The company is now concentrating on two divisions: Maintenance, Modifications and Operations, and Engineering & Technologies. Mr. Blades said the MMO wing is already doing quite well and focuses on making industrial plants more efficient. Meanwhile, the engineering unit helps plants expand and implement emission-cutting technologies, but suffered a fall in revenue in the last quarter.

15 p23 Bilfinger-01

It’s easier to explain what a construction firm does than what Bilfinger wants to become: an industrial service provider. But the key is that it finally has a strategy after spending years drifting. Bilfinger und Berger was formed in 1975 through a number of mergers and did well until Roland Koch, a former premier of the state of Hesse, became CEO. Mr. Koch went on a shopping spree aimed at turning it from a construction into a services company. Expanding well beyond construction, Bilfinger took over the planning and maintenance of industrial plants and nuclear power stations. It also got into facilities management – cleaning, maintaining and running buildings.

Its share price rose and Mr. Koch’s plan appeared to be working. But it gradually became clear that Bilfinger didn’t know enough about the markets it was getting into. It was forced to pay a fine to resolve US criminal charges that it bribed Nigerian officials to obtain contracts on a gas project in the African nation. When it slipped into the red and issued two profit warnings, Mr. Koch had to step down. More warnings followed and two CEOs came and went. Now Mr. Blades has his shot.

Analysts question whether he can succeed. Its shares have been in decline since 2014, falling as low as €25 in August 2016 from more than €70. They hit another low last summer when Mr. Blades issued a profit warning as well. In September, Bilfinger dropped out of the MDax index of medium-sized companies because of a low market capitalization and trading volume. The stock now hovers around €40.

Mr. Blades admits the restructuring is a tough job. “We go two steps forward and one step back,” he said. He wants to tackle Bilfinger’s decentralized structure but the progress is slower than he would like. Headquartered in the southwest city of Mannheim, the company remains a jumble of business divisions, or rather fiefdoms, whose managers haven’t been cooperating to create synergies. Although the CEO has recognized the problem, he hasn’t gotten it under control.

“When I started in November 2015, the workforce was deeply unsettled.”

Michael Bernhard, Chief Human Resources Officer

On the plus side, he’s been taking steps to reassure the group’s workers. Michael Bernhard, board member in charge of personnel, said when he took the job in November 2015, the workforce was “deeply unsettled.” Employees didn’t know whether the company would stay in business or whether the biggest shareholder, Sweden’s Cevian Kapital (which holds almost 30 percent of equity) would break it up. Various companies were sold and a voluntary redundancy program was launched with the aim of cutting staff at the head office from 280 to 220 by the end of 2018.

The working atmosphere has been marked by fear and mutual mistrust that was compounded by a chronic lack of communication. But that’s changing. Mr. Bernhard said the firm has improved internal communication by launching a digital newspaper and holding regular employee gatherings.

Bilfinger has also won praise from industry representatives. “It’s completed the transformation from a construction company to an industrial services provider,” said Reinhard Maass, director of Germany’s industrial services association WVIS.

It’s still unclear whether Bilfinger will manage the turnaround. But Chief Financial Officer Klaus Patzak is cautiously optimistic. “I underline the word cautiously because we have to fight hard for every step forward,” he said at the end of last year.

Maike Freund is an editor on Handelsblatt’s politics desk. To contact the author: freund@handelsblatt.com

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