Future Uncertain

Warning: Construction Ahead

bilfinger_schafft_loesungen_cut_bilfinger
Everyone is looking for the new CEO.
  • Why it matters

    Why it matters

    The search for a new chairperson is paralyzing engineering and construction firm Bilfinger where employees are anxious and organizational changes are needed.

  • Facts

    Facts

    • Hochtief, a construction conglomerate which had a revenue of €25,693 in 2013, is a competitor of Bilfinger.
    • The current chairman at Bilfinger is Herbert Bodner but his short period in the job means little is likely to change at the firm until a successor is found.
    • Bilfinger is in the middle of a change into an industrial services company which has higher margins than construction.
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    Audio

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For Herbert Bodner, Bilfinger’s interim chairman, the vote of confidence came just when he needed it.

On Monday, Cevian increased its shares in Bilfinger, an engineering and services group, from 20.2 to more than 25 percent.

Cevian, a Swedish investment firm, seems to believe in Bilfinger despite its battered image – and also in Mr. Bodner. Cevian’s support is rare, unfortunately for Mr. Bodner, who is leading the executive board until a replacement can be found.

Most investors are abandoning the company and Bilfinger’s share price has fallen from 61 to €50 since August 4. That was the day the supervisory board announced that changes had been made at the top.

Former politician Roland Koch had to step down after three years leading the executive board, and his predecessor, Mr. Bodner, switched for one year from the supervisory board to the executive board.

Many problems at Bilfinger stem from its complicated structure.

But Mr. Bodner, the interim chief, has not been able to prevent the decline of what was once a model company. On the contrary, he made investors nervous when, on taking up his position, he issued a profit warning – the third in a row.

“Bilfinger is stuck in a dangerous quandary,” an insider said. “On the one hand, important decisions are pending, such as the sale of the civil engineering division. On the other, everyone is waiting for the new chairman. They know that until that person comes, nothing will happen.” The company is currently almost paralyzed.

Many problems at Bilfinger stem from its complicated structure.

Mr. Bodner, a civil engineer, started years ago to transform the business from a construction company to a provider of industrial services. He wanted to trade the high-risk, low-margin construction business for the higher-profit service business.

He bought dozens of engineering and services companies and created a conglomerate of businesses. Roland Koch, the former governor of the German state of Hesse, was tasked with bringing this network together. At the same time, Mr. Koch reorganized Bilfinger to lower administrative costs and maintain access to all the operational units, including the company’s industry and energy divisions.

Herbert Bodner_DPA
Can Herbert Bodner stop Bilfinger’s downhill trend? Source: DPA

 

Cutting 1,250 administrative is helping but did not win Mr. Koch popularity.

Rainer Knerler, a member of the supervisory board and a trade union representative, understands that a firm does not need duplicate functions. “But (Mr. Koch) should have taken more time to implement this,” Mr. Knerler said. “This way, it just increased unrest within the company.”

He said people should not draw the wrong conclusions from the profit warnings. “Even if the company is now aiming for lower profits, that should not come at employees’ expense.” He said the responsibility lies with the chairman.

His boss meanwhile is trying to calm people down. “We don’t plan to go through the firm and look for further savings,” Mr. Bodner said at the presentation of the half-year figures.

“Mr. Bodner analyzed the situation and got rid of any skeletons in the closet,” one Bilfinger manager said. “That’s the right thing to do, and what everybody wanted – including the supervisory board.”

“Many investors are waiting until a new chairperson comes. That person may well go through everything all over again and restructure once more.”

Marc Gabriel, Bankhaus Lampe

But the housecleaning did not create calm.

“Many investors are waiting until a new chairperson comes,” said Marc Gabriel from Bankhaus Lampe in Düsseldorf. “That person may well go through everything all over again and restructure once more.”

The energy division deserves a close look because the once steady earner is not delivering the promised profits. Many businesses stopped making investments in power plants because of the boom in renewable energy, which has caused difficulties across Germany’s industrial services branch. “Spending on power plant maintenance and repair in Germany has dropped by 40 to 45 percent this year,” said Reinhard Maass, managing director of the industry association WVIS.

Critics accuse Mr. Koch of investing too late in other markets such as North and South America, to counterbalance the problems in the European energy business.

Mr. Bodner can’t fix these deficits in a short period of time. “Bodner should establish calm and keep the business running,” said a source close to the supervisory board. “If there are big issues, he can make suggestions, but decisions will be made by the new chairman.”

 

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The uncertainty has left many employees anxious, because they don’t know which direction the company will go in. “They want security, but no one can deliver that right now,” said a Bilfinger employee, describing the mood at the company.

Mr. Bodner enjoys a high level of approval among most employees. He successfully led the company for a long time. Nonetheless, his appointment as interim chairman made some people at the company headquarters uneasy. “During his tenure he failed to truly integrate all the newly purchased businesses,” said one manager. “Why would he do it now when he knows he has only been appointed for a certain amount of time?”

Supervisory Board Chairman Bernhard Walter, former management board spokesman for Dresdner Bank, will need to find a new executive board chairman as soon as possible. That is the only way to end Bilfinger’s deadlock. “The search for a successor is currently in full swing,” said the source close to the supervisory board.

Both internal and external candidates are being considered. One internal candidate is Jochen Keysberg. The civil engineer, born in 1966, helped out as a troubleshooter more than four years ago when Bilfinger was under fire for a botched subway construction project in Cologne. Mr. Keysberg has since joined the executive board and is responsible for the construction industry.

Another candidate, Frank Stieler, comes from outside the company. Mr. Stieler, 55, who holds a doctorate in law, was the chief executive of Hochtief, one of Bilfinger’s rivals, until November 2012. Since then, Stieler has been primarily working as a consultant.

 

Jens Koenen is the head of Handelsblatt’s Frankfurt office. Georg Weishaupt is an editor at Handelsblatt and covers the building industry as well as wind and solar energy. To contact the authors: koenen@handelsblatt.com and weishaupt@handelsblatt.com

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