Financial Status and Targets CFO Dr. Helmut Schmale London, October - - PowerPoint PPT Presentation

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Financial Status and Targets CFO Dr. Helmut Schmale London, October - - PowerPoint PPT Presentation

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Financial Status and Targets CFO Dr. Helmut Schmale London, October 13, 2014 GEA Group Aktiengesellschaft Disclaimer Forward-looking statements are based on our current assumptions and forecasts. These statements naturally entail risks and

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GEA Group Aktiengesellschaft

Financial Status and Targets CFO Dr. Helmut Schmale

London, October 13, 2014

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engineering for a better world

Forward-looking statements are based on our current assumptions and forecasts. These statements naturally entail risks and uncertainties, which may cause the actual results of operations, financial position or performance to diverge significantly from the estimates given here. Factors that could cause such a divergence include changes in the economic and business environment, fluctuations in exchange rates and interest rates, launches of competing products, poor acceptance of new products or services, and changes in business strategy. We are under no obligation to update forward-looking statements. Due to rounding, the sum of percentages of order intake and sales by region as well as by customer industry may vary from 100%.

Disclaimer

GEA Capital Markets Day 2014 - Financial Status and Targets 2

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  • Financial Targets for FY 2017 – FY 2020
  • Capital Allocation
  • Acquisition Criteria
  • Preliminary Key Figures Q3 2014 / Guidance FY 2014

Agenda

1 3 2 4

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Financial Targets

FY 2014 - 2020 CAGR Organic Sales Growth FY 2014 - FY 2020: 4% to 6% p.a. FY 2017 - 2020 Service to Sales Ratio: ~30% Operating EBIT-Margin1: 13% to 16% Working Capital to Sales Ratio: 10% to 12% Capex to Sales Ratio: 1.5% to 2.0% Cash Flow Driver Margin1: 12% to 15% ROCE1: 20% to 25% Net Effective Tax Rate: 24%

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1 For the corresponding definition please refer to the last page of this presentation

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Financial Targets Organic sales growth of 4% to 6% p.a. until 2020

GEA Capital Markets Day 2014 - Financial Status and Targets 5 (Index 2009 = 100) 70 80 90 100 110 120 130 2009 2010 2011 2012 2013

GEA: +5.8% p.a. GDP: +3.8% p.a.

GEA organic sales growth until 2020: 4% to 6% CAGR until 2020 GEA organic sales growth 2009 – 2013 has outperformed GDP by ~200 bps

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Financial Targets for FY 2017 - FY 2020 Service Business: ~30% of sales

  • Increasing installed

equipment base

  • Improving coverage ratio
  • f own installed base in

particular in Emerging Markets

  • Increasing service intensity

per machine (e.g. “condition monitoring”)

Service business today Increasing service intensity Target 2017 - 2020 Increasing installed base Improving coverage ratio

27%

  • f sales

~30%

  • f sales

Dimensions to further grow the service business:

GEA Capital Markets Day 2014 - Financial Status and Targets 6

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engineering for a better world 294 192 248 403 426 459 479 8.8% 6.8% 8.4% 10.5% 10.3% 10.6% 10.9% 13,2% 2008 2009 2010 2011 2012 2013 Q2 2014 (LTM) 1 Target 2017- 2020 Operating EBIT Operating EBIT-Margin (LTM)

GEA has gradually managed up Operating EBIT-Margin to ~11%

Financial Targets for FY 2017 - FY 2020 Operating EBIT-Margin: 13% to 16%

7 Sales growth [EURm] GEA Capital Markets Day 2014 - Financial Status and Targets 16% 13% 100 Savings “Fit for 2020“ Target 2017 - 2020 Target Range

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Target Ratio Working Capital: 10% to 12% of sales

Financial Targets for FY 2017 - FY 2020 Working Capital: 10% to 12% of sales

  • At currently ~12%, the Working

Capital to sales ratio came down from 2008/2009 levels

  • Group wide factory coordination

will facilitate inventory reductions in future

  • During stronger growth periods,

WC ratio tends to come up a little

436 430 343 438 525 506 524 13.0% 15.3% 11.6% 11.4% 12.7% 11.7% 11.9%

0% 2% 4% 6% 8% 10% 12% 14% 16% 100 200 300 400 500 600 700 800

2008 2009 2010 2011 2012 2013 Q2 2014 x y Target Working Capital (average LTM) Working Capital (average LTM) as % of sales (LTM) 8 GEA Capital Markets Day 2014 - Financial Status and Targets [EURm] 12% 10% Target 2017 - 2020

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Financial Targets for FY 2017 - FY 2020 Capex: 1.5% to 2.0% of sales

  • Capex was above 3% of sales due

to investments into new production facilities mainly in Europe and China

  • New organization bundling

production activities in dedicated areas will even better allocate production capacities and hence reduce need for Capex

92 75 59 125 125 121 42 2.7% 2.7% 2.0% 3.3% 3.0% 2.8% 2.0%

  • 1%

2% 4% 20 40 60 80 100 120 140 160

2008 2009 2010 2011 2012 2013 H1 2014 x y Target 2017 Capex Capex as % of sales 9 GEA Capital Markets Day 2014 - Financial Status and Targets [EURm] 2.0% 1.5% Target 2017 - 2020

Target Capex: 1.5% to 2.0% of sales

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Target CFD-Margin: 12% to 15%

Financial Targets for FY 2017 - FY 2020 Cash Flow Driver Margin: 12% to 15%

CFD-Margin to benefit from:

  • Rising EBIT-Margins (min. 13%)
  • Capex restraint

(max. 2% of sales)

  • Working Capital discipline

(max. 12% of sales)

119 299 221 207 414 394 4.2% 10.1% 5.8% 5.0% 9.6% 9.0%

  • 7%
  • 2%

3% 8% 13%

  • 50

50 150 250 350 450 550 650

2009 2010 2011 2012 2013 Q2 2014 x y Target Cash Flow Driver (LTM) Cash Flow Driver Margin (LTM) 10 GEA Capital Markets Day 2014 - Financial Status and Targets [EURm] 15% 12% Target 2017 - 2020

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Target ROCE: 20% to 25%

1,063 1,094 1,069 1,620 1,887 1,895 1,912 26.4% 11.3% 18.9% 21.4% 16.7% 22.1% 22.9% 2008 2009 2010 2011 2012 2013 Q2 2014 x y Target 2017 Capital Employed (average LTM) ROCE (average LTM)

Financial Targets for FY 2017 - FY 2020 ROCE: 20% to 25%

[EURm]

  • Increasing EBIT-Margins

(numerator) and decreasing Working Capital and Capex to sales ratios (denominator) should strengthen ROCE

  • However, acquisitions will have an

adverse temporary impact due to ppa amortizations and delayed full year earning recognition (numerator), but immediate addition of target’s asset to capital employed (denominator)

11 GEA Capital Markets Day 2014 - Financial Status and Targets 25% 20% Target 2017 - 2020

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  • Financial Targets
  • Capital Allocation
  • Acquisition Criteria
  • Preliminary Key Figures Q3 2014 / Guidance FY 2014

Agenda

1 3 2 4

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Reputation and illustration

  • f financial

leeway More

  • pportunities

to use group guarantees instead of external bank guarantees Some debt covenants require investment grade Lower interest level (especially in times of distress) Better access to debt capital markets

GEA Capital Markets Day 2014 - Financial Status and Targets 13

Why GEA wants to continue to earn investment grade rating

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Credit rating does not account for cash position

Rating relevant (adjusted) gross debt: gross financial debt plus pension liability plus lease liabilities (inferred from operating leases) Only gross debt is taken into consideration, while cash on hand gets ignored Main leverage ratio according to Moody’s: adjusted gross debt/adjusted EBITDA GEA’s strategic minimum cash reserve of around EUR 150m to 200m not viewed as a safety cushion

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Adjusted leverage ratio main trigger for GEA’s rating

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552 392 944 680 384

Target corridor for indebtedness levels applying Q2 2014 numbers

2,008

Operating lease Pensions Gross financial debt Rating- relevant gross debt Cash Net debt Net debt Rating- relevant gross debt

Target Gross Debt: 2.0-2.5x EBITDA 552 2,008 Average Net Debt: 0.5-1.0x EBITDA

[EURm] [EURm] 15 GEA Capital Markets Day 2014 - Financial Status and Targets

Trigger thresholds for GEA’s credit rating

Debt reduction

GEA’s rating relevant gross debt is four times its net financial debt per Q2 2014

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Actual average interest level: < 3% p.a. Maturity of GEA's main financial debt structure per Q2 2014

GEA’s current main financial debt structure contains redemption potential

2017 2016 2015 2014

KfW Loans GEA Bond EIB Loan Borrower‘s Note Loan

34 450 7 434 34 400 150 300 GEA Bond (4.25% coupon; no call option): EUR 400m KfW Loans: EUR 75m European Investmentbank: EUR 150m Borrower‘s Note Loan: EUR 300m

[EURm] 16 GEA Capital Markets Day 2014 - Financial Status and Targets

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Sources of funds: Significant cash flow 2015 - 2017

GEA with stronger cash generation going forward

  • 2. Strengthen GEA’s application know-how by

doing (bolt-on) acquisitions over a couple of years

  • 3. Repayment of financial debt
  • 4. Invest in organic business development

(Service, R&D, regional presence)

  • 5. Distribution of residual cash to shareholders

Capital allocation priorities

2017 Proceeds GEA HX Cash flow before M&A and dividends

~1 ~2 ~1

Key objectives

  • Maintain financial flexibility
  • Maintain investment grade credit rating
  • Rating relevant gross debt: 2.0-2.5x EBITDA
  • Average net financial debt: 0.5-1.0x EBITDA

17 GEA Capital Markets Day 2014 - Financial Status and Targets [EURbn]

  • 1. Dividend payments: Change of payout ratio

from 1/3 to 40-50% of net income

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  • Financial Targets
  • Capital Allocation
  • Acquisition Criteria
  • Preliminary Key Figures Q3 2014 / Guidance FY 2014

Agenda

1 3 2 4

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Post merger integration M&A M&A criteria with focus on value creation Structured integration approach to unlock synergies

GEA follows an integrated M&A strategy

Clear strategic direction for M&A transactions Strategy

EBITA 44 37 Value to GEA 6 W/C & Capex Invest W/C & Capex syn One-off 1 Dis- Syn 3 Rev. Syn 8 Cost Syn 3 37

Synergy bridge

Value added

GEA Capital Markets Day 2014 - Financial Status and Targets 19

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Strategy process defined “white spots” in GEA’s portfolio

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New applications with many "white spots"

Existing applications, e.g.

A Milk Powder Fruit & Vegetables … Meat & Poultry Cheese Fish & Shrimps Pet Food Personal Care …

Cross-application technologies, e.g.

C

New applications, e.g.

B Online Monitoring Process Automation …

Attractive "white spots"

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Post merger integration M&A M&A criteria with focus on value creation Structured integration approach to unlock synergies

GEA follows an integrated M&A strategy

Clear strategic direction for M&A transactions Strategy

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EBITA 44 37 Value to GEA 6 W/C & Capex Invest W/C & Capex syn One-off 1 Dis- Syn 3 Rev. Syn 8 Cost Syn 3 37

Synergy bridge

Value added

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Acquisition criteria focus on strategy and value creation

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ARTE fit

A

Regions Technologies Applications

Functional Excellence

Strategic fit

B

Value creation

C Market attractiveness Target attractiveness Earnings per share Total share- holder return DCF > Price CFD > hurdle rate ROCE > hurdle rate

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Acquisition criteria – Strategic fit Focusing on market and target attractiveness

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Market attractiveness Target attractiveness Relative market share Relative growth Relative profitability Service sales Cost flexibility Competitive advantages Strategic fit 4 1 2 3 5 6 7 Market size Market growth Market profitability Service potential Cyclicality Competition Entry barriers 4 1 2 3 5 6 7

23 GEA Capital Markets Day 2014 - Financial Status and Targets

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Post merger integration M&A M&A criteria with focus on value creation Structured integration approach to unlock synergies

GEA follows an integrated M&A strategy

Clear strategic direction for M&A transactions Strategy

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EBITA 44 37 Value to GEA 6 W/C & Capex Invest W/C & Capex syn One-off 1 Dis- Syn 3 Rev. Syn 8 Cost Syn 3 37

Synergy bridge

Value added

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Acquisitions (revenue p.a.)

~150 ~70 ~130 ~210 ~200 ~60 ~40 ~510 ~45 ~40 2004 2005 2006 2007 2008 2009 2010 2011 2012

GEA Capital Markets Day 2014 - Financial Status and Targets 25 [EURm]

2013 2014

  • Agroserve
  • Goedhart
  • WTT
  • Messo-

Chemie- technik

  • Colby
  • Diessel
  • Membraflow
  • FlatPlate
  • Steris
  • 2H Kunst-

stoff

  • Hapco
  • Huppmann
  • ISISAN
  • Denco
  • AWP Kälte-

Klima- Armaturen

  • Munters/

2H Aqua

  • Procomac
  • J. Houle

& Fils

  • Aero Heat

Exchangers

  • Univalve
  • ViEx
  • ICG
  • Bloksma
  • PSSP

Fabrication

  • Caldemon

Iberica

  • Norbco
  • Astair
  • Deichmann
  • ADG
  • NEMA Air

FIN

  • Eurotek

Engineering

  • Intec
  • DB Wilaard

Holding

  • Ion Blast
  • ACO

Engineering (India)

  • Skiold

Mullerup

  • ACC Air

Pollution Control Division

  • Farmers

Industries

  • BSGT Beijing
  • Breconcherry
  • CPM

Manufacturing

  • Mashimpeks
  • Bock Kälte-

maschinen

  • CFS
  • Nu-Con
  • San-Joaquin
  • Aseptomag
  • Marine

Services

  • Milfos
  • de Klokslag
  • Scan Vibro

GEA has a good track record in managing the integration

  • f several smaller targets in parallel
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engineering for a better world Shared Services Center Global Corporate Center North America Latin America Western E. & MEA Nordics, UK/IE, & BeNeLux Asia-Pacific DACH & Eastern E. Equipment Business Area Product Engineering & Development Product Management & Sales Supply Chain & Production Equipment Service Solutions Business Area Technology Centers Application Centers Solutions Service GEA Capital Markets Day 2014 - Financial Status and Targets 26 Administration Regions Engineering Sales Production Service

Aquired company GEA

The new organization allows to integrate targets better along their various functional dimensions

Different functions of acquired company will be benchmarked with best in class processes

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  • Financial Targets
  • Capital Allocation
  • Acquisition Criteria
  • Preliminary Key Figures Q3 2014 / Guidance FY 2014

Agenda

1 3 2 4

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Sales Q1 - Q3 Sales Q3 Order Intake Q3 Order Intake Q1 - Q3

Preliminary Key Figures Q3 2014 and change YoY

175 194 515 506 358 326 151 166 0% 1,165 1,168 Q3 2013 Q3 2014  -9%  -2%  +11%  +10%

  • rganic: -1%

185 196 441 460 336 344 157 176 +5% GEA RT GEA PE GEA ME GEA FT 1,147 1,089 Q3 2013 Q3 2014  +2%  +4%  +6%  +12%

  • rganic: +5%

534 591 994 445 498 GEA RT GEA PE GEA ME 3,359 GEA FT

  • 4%

1,374 3,483 1,566 1,034  -4%  -12%  +11%  +12%

  • rganic: -2%

526 540 968 995 402 457 3,216 GEA FT 1,320 3,078 1,271 GEA PE +4% GEA RT GEA ME  +3%  +4%  +3%  +14%

  • rganic: +6%

Q3 2013 Q3 2014 Q3 2013 Q3 2014 28 GEA Capital Markets Day 2014 - Financial Status and Targets GEA RT GEA PE GEA ME GEA FT

[EURm] [EURm] [EURm] [EURm]

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At the condition of no unexpected economic downturns, assuming constant FX-rates versus FY 2013 and disregarding potential acquisitions and one-off expenses we are aiming in 2014 for:

Cash Flow Driver Margin:

Guidance FY 2014 continuing operations confirmed

Sales

moderate growth

Operating EBITDA (EURm)

550 - 590

Cash Flow Driver Margin

9.0% - 9.5%

EBITDA Capex  Working Capital (LTM) Sales Sales Sales

  • +

GEA Capital Markets Day 2014 - Financial Status and Targets 29

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Definitions

  • Operating EBIT = EBIT before ppa and one-off expenses
  • Cash Flow Driver Margin = [EBITDA – Capex -/+  Working Capital (LTM)] / Sales
  • Capital employed excluding goodwill from the acquisition of the former GEA AG by the former Metallgesellschaft AG

in 1999.

  • ROCE LTM = EBIT reported (LTM) / Capital employed excluding goodwill from the acquisition of the former GEA

AG by the former Metallgesellschaft AG in 1999 (average LTM).

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