Germany's Bilfinger Cuts Costs after CEO Exit

Q2 group adjusted EBITA 65 mln euros vs 93 mln last year. Power division EBITA drops to 9 mln euros; shares up 4.9 pct, top performer on MDAX.

German industrial services group Bilfinger, whose chief executive resigned last week after two profit warnings, said cost cuts in the second half of the year should help cushion an expected fall in annual profit.

Bilfinger on Monday reported a 30 percent drop in second-quarter earnings before interest, tax and amortisation (EBITA), adjusted for one-time items to 65 million euros ($87 million), due to weak demand in the energy market.

At the power division - which produces, supplies and installs boiler components for power plants - earnings plummeted by 74 percent to 9 million euros.

The industrial services and construction group has been trying to wean itself off a business model vulnerable to price wars in the building sector, shifting its focus to higher-margin engineering and services for industrial facilities, power plants and real estate.

But the strategy failed when Germany's big utilities cut spending due to the country's shift from nuclear power to greener energy sources.

The group issued two profit warnings within around six weeks, blaming weak demand from energy companies and the loss of a project in South Africa, prompting Chief Executive Roland Koch to step down last week.

Bilfinger said last week that it expected 2014 adjusted EBITA to drop to between 340 million and 360 million euros from 409 million in 2013. In the first half, adjusted EBITA was 111 million euros.

The company's shares, down 37 percent since the first profit warning on June 30, were up 4.9 percent at 55.12 euros by 1012 GMT on Monday on investor relief that the quarterly results were not worse. They were at the top of Frankfurt's mid-cap index , which was up 1.9 percent.

"It wasn't as bad as I had feared," said analyst Marc Gabriel of Bankhaus Lampe, adding that non-core earnings helped bolster Bilfinger's profits.

COST CUTS

Bilfinger said it expected to make 50 million euros of cost savings this year, as plans announced last year to cut 1,250 administrative jobs start to take effect. The company aims to reduce annual costs by 80 million to 90 million euros from 2016.

Chief Financial Officer Joachim Mueller said the company planned to reduce costs further at its industrial division, although job cuts would be fewer than the 200-300 announced last month at the power division's high pressure piping business.

Bilfinger is about 20 percent owned by Swedish activist investor Cevian, which has been seeking to expand its footprint in Germany. Bilfinger's share price is now about 14 percent lower than when Cevian started investing in the company in 2011.

Its major clients are utilities, industrial companies, plant manufacturers and research institutes. Its biggest rivals include Alstom Power, Apiq, Balcke-Duerr, Doosan-Babcock, Mitsubishi (MBI.F)-Hitachi (HTHIY) .

Reporting by Marilyn Gerlach