Power sale

Bilfinger Fails to Go Green

The new chief executive of the German construction group Bilfinger is radically changing the company's strategy.
  • Why it matters

    Why it matters

    Bilfinger’s exit from power construction highlights the challenges posed to big industrial firms by Germany’s transition to renewable energy.

  • Facts


    • Bilfinger, which had 2014 revenues of €7.7 billion ($8.7 billion), builds shopping malls, drills for oil and provides industrial services.
    • It issued a fifth straight profit warning last month, mainly due to the closing of conventional power plants in Germany.
    • Per Utnegaard, known as a cost cutter, became the new executive on June 1.
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Per Utnegaard could not resist taking a potshot at his predecessor as chief executive of engineering and construction firm Bilfinger.

When looking at the numbers of its power-plant parts business from the past two years, Mr. Utnegaard said the question that should be asked is “why this business wasn’t sold much sooner.”

The Norwegian, who became Bilfinger’s CEO on June 1 and is known as a cost cutter, used the words as he was explaining the first step of the reorganization of the Mannheim-based company.

Bilfinger’s shares fell more than 14 percent on Thursday and traded at their lowest point in almost six years.

It included the sale of the power business, one of Bilfinger’s three largest segments, with a turnover of €1.45 billion ($1.6 billion), a fifth of total sales. The division builds and maintains power plants, but has been hit hard by Germany’s energy transition.

Following the disaster at Japan’s Fukushima nuclear power plant in 2011, Germany decided to phase out nuclear power by 2022 and reduce energy production from fossil fuels, hitting conventional power businesses in the country and leading to fewer investments. Germany intends to produce 80 percent of its power from renewable sources by 2050.

Bilfinger has struggled to adapt to the new environment. Its former CEO, the former state premier of Hesse, Roland Koch, left last August as he failed to turn the company around.

In contrast, Mr Utnegaard, who was CEO of airport logistics firm Swissport from 2007 to 2015, has hit the ground running and he expects to sell Bilfinger’s power engineering and construction operations within a year, leaving it with its industrial business and building and facility construction unit.

With the move, Mr. Utnegaard is not just ending the company’s strategy to date, which assumed all three divisions would enrich each other, he is also ringing in the great cleanup.

“We expect the worst to be out of the way by fall,” a source in the supervisory board, who declined to be named, told Handelsblatt.


Bilfinger Going Down-01


In other words, the segments of facility management and industrial services will also be examined. Bilfinger will announce the review of all operations in the fall, the company said.

The official announcement of the sale included the fifth profit warning in a row. Losses and high write-downs in the power business, which may still surpass the level of the previous year of €148 million, will put the company considerably in the red for the first half of the year.

As a result, Bilfinger’s shares fell more than 14 percent on Thursday. They recovered slightly on Friday morning, rising 1.3 percent to €32.64, but the shares were still trading at their lowest point in almost six years.

In the power plant segment, more losses and risks have been discovered, which surprised many analysts. The new chief financial officer Axel Salzmann, who joined Bilfinger in April, cared “mercilessly for transparency” in accounting, people familiar with the matter told Handelsblatt.

The sale of the power plant business has been looming for a long time. The financial investor Cevian has primarily been pushing for it. The private equity firm owns 26 percent of Bilfinger shares, and it put one of its partners, Eckhard Cordes, in the position of non-executive chairman of Bilfinger’s supervisory board in November last year.

Even the workers’ representatives support the sale of Bilfinger’s power construction operations in the hope that many of the jobs will survive under a new owner.


173 Bilfinger-01 WTB 2014


The business, with its 11,000 workers, is strongly focused on Germany and Europe, where hardly any new power plants are being built. That is different in Asia and Latin America, but the division does not have a presence there.

Bilfinger executives are convinced that the sale of the power plant segment will be a moneymaker. It is possible that the company will have to make itself more attractive for the sale.

“Despite the high losses, it is not ruled out that an investor will pay a positive purchasing price, especially if Bilfinger offers something on top of the power segment as a bonus,” said restructuring expert Dirk Schoene from law firm Dentons.

Investors expect a tough crackdown and quick decisions from Mr. Utnegaard. It is not being ruled out in the company that there could be personnel changes. For example, company executives are wondering why the management board member responsible for the power segment, Joachim Enenkel, has not yet felt any consequences.

It may be an inconvenient truth for Mr. Utnegaard that corruption in the company has not yet been stemmed. According to “Manager Magazin,” 29 new cases have been discovered since spring 2014. The CFO, Mr. Salzmann, did not want to confirm this number, but underscored that there is a zero tolerance policy for corruption at the company.


Bert-Friedrich Fröndhoff is the deputy head of the companies and markets section at Handelsblatt. Jens Koenen leads Handelsblatt’s coverage of the aviation and IT industry and is bureau chief of the Frankfurt office. Georg Weishaupt covers the building sector, solar and wind energy for Handelsblatt. To contact the authors: froendhoff@handelsblatt.comkoenen@handelsblatt.com and weishaupt@handelsblatt.com

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