Significant levels of uncertainty within the European oil and gas sector and problems at a South African power plant have slashed earnings at of one of Germany’s largest building and engineering firms.
Unveiling its second quarter results, Bilfinger Berger said first half earnings before interest, tax, depreciation and amortisation (EBITDA) from continuing operations dropped 26 per cent from €150 million to €111 million ($A160.34 million), while adjusted net profit after tax dropped 15 per cent from €84 million to €71 million.
Leading the decline were the group’s power and industrial divisions, both of which were hit by uncertainty surrounding Germany’s energy transformation, overall European economic uncertainty associated with the situation in Ukraine and, in the case of the former, trouble associated with a project in South Africa.
Earnings in these divisions plummeted 60 per cent and 13 per cent respectively.
"Bilfinger is currently faced with a difficult economic environment in the energy market and in the European oil and gas sector," the company said in a statement. "Against this backdrop and as a result of additional project burdens, the company’s business development did not meet expectations in the first half of 2014, as previously announced at the end of June.""
Around Europe, the energy sector has been impacted in recent years by significant levels of uncertainty surrounding Energiewende (German for ‘Energy Transition’) - an ambitious plan first launched in 2003 but relaunched earlier this year by Germany’s government. The plan involves beefing up the renewable energy component of that country’s electricity mix from around 25 per cent today (according to the European Public Affairs web site) to around 45 to 55 per cent by 2025 and 80 per cent by 2050. It also entails tightening a renewable energy subsidy scheme to apply only to more targeted, selective projects based upon market criteria.
Such policies are causing oil and gas providers and energy companies not just in Germany but all across Central Europe to cut back on investment, a phenomenon which for Bilfinger has meant lower orders for the power systems and piping systems it supplies to utilities and also for the insulation, scaffolding and painting services it provides to the oil and gas sector.
Broader European economic uncertainty surrounding the situation in Ukraine, too, has not helped the company, nor have low levels of capacity utilisation in its piping systems division and ‘burdens’ from some projects including a major project in South Africa.
Such issues have already resulted in the resignation of executive board chairman Roland Koch, who stepped down on August 7 following a profit warning.
More positively, the group’s construction and maintenance division lifted earnings by 28 per cent amid stronger output volumes, a significant portion of which came from the relatively newly acquired European Support Services.
Going forward, however, the company said it expects unchanged conditions in the European energy market in the second half of the year and a further deterioration in European oil and gas markets.
For the full year, it expects net profit of €205 million to €220 million, well down on last year’s comparable €255 million.