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UPDATE 2-Bilfinger issues first profit warning under new CEO
July 11, 2017 / 7:59 PM / 2 months ago

UPDATE 2-Bilfinger issues first profit warning under new CEO

* Bilfinger sees 2017 EBITA breakeven instead of margin rise

* Blades was brought in after profit warnings, multiple CEOs

* Says resolutely working through legacy projects (Adds details on Q2, mid-term targets, background)

By Georgina Prodhan

FRANKFURT, July 11 (Reuters) - German engineering services group Bilfinger issued its first profit warning in more than two years on Wednesday, blaming legacy U.S. projects that were approved just before Chief Executive Thomas Blades took over in July 2016.

The company made an operating loss in the second quarter and now only expects to break even at EBITA (earnings before interest, tax and amortisation) level in 2017, abandoning a previous target of raising its EBITA margin by 100 basis points from 0.4 percent.

Bilfinger has slimmed down and regrouped under Blades, who was brought in after six profit warnings, four CEOs and multiple reorganisations in the space of two years amid a decline in the company’s primary energy markets.

“We are resolutely working through legacy projects,” Blades said in a statement.

Blades brought in a new finance chief, Klaus Patzak, who started in October 2016.

Bilfinger said in May that it had begun to take a “very selective approach” to higher-risk projects and had also begun to reduce selling and administrative expenses.

Second-quarter orders were stable year-on-year and output - the value of work done - declined slightly, it said in a preliminary statement of results it is due to publish in detail on Aug. 14.

Bilfinger confirmed its targets for a full-year organic increase in orders this year but a decline in output in a mid- to-high single-digit percentage range. It said a share buyback programme of up to 150 million euros would begin as planned this autumn.

The Mannheim-based company confirmed its mid-term goals for an annual increase in output of at least 5 percent between 2017 and 2020, and a EBITA margin of around 5 percent by 2020.

The 55 million euros ($63 million) in provisions for the U.S. projects were offset on a net-profit level by a legal case it won over a Doha expressway project, for which it was paid 60 million euros.

Bilfinger, previously a storied name in German construction that was associated with the Munich Olympic stadium among other projects, lost out in a bet to focus on higher-margin services in the early years of this decade.

Its main customers were energy utilities and petrochemical companies, which suffered badly and cut spending as the oil price went into decline.

Its share price has dropped from a high of around 93 euros in April 2014 to 34.39 euros at Tuesday’s close, although it has recovered by around a quarter since Blades started as CEO just over a year ago.

The company’s value, at 1.5 billion euros ($1.7 billion), is around half what it was when major shareholder Cevian began acquiring shares in 2011. The activist investor now owns about 30 percent of the company. ($1 = 0.8721 euros)

Reporting by Georgina Prodhan; Editing by Andrew Roche

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