GEAs strategic transformation to OneGEA Jrg Oleas, CEO GEA Group - - PowerPoint PPT Presentation

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GEAs strategic transformation to OneGEA Jrg Oleas, CEO GEA Group - - PowerPoint PPT Presentation

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GEAs strategic transformation to OneGEA Jrg Oleas, CEO GEA Group London, October 13, 2014 GEA Group Aktiengesellschaft Disclaimer Forward-looking statements are based on our current assumptions and forecasts. These statements

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GEA Group Aktiengesellschaft London, October 13, 2014

GEA’s strategic transformation to “OneGEA” Jürg Oleas, CEO GEA Group

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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 - GEA’s strategic transformation to “OneGEA” 2

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  • Strategic Roadmap “GEA 2020”
  • ARTE framework as pillars for GEA’s strategy
  • Future organizational set-up “Fit for 2020”

Agenda

1 3 2

3 GEA Capital Markets Day - GEA’s strategic transformation to “OneGEA”

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The steps of GEA’s strategic transformation

“Fit for 2020” reorganization With which core businesses? Where are we driving GEA?

2012

GEA long-term strategic direction GEA strategic portfolio review “GEA 2020” target footprint

2013

With focus on which growth areas? In which efficient

  • rganizational setup?

Divestment of HX Segment

2014: Concept 2015: Implementation 2012 – 2013

GEA Capital Markets Day - GEA’s strategic transformation to “OneGEA” 4

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2003 – 2008 2009 – 2014

  • Divestiture of

Chemicals & Plant Engineering, Closure

  • f Zinc Smelter
  • Reorganization into 5 distinct segments

and 31 business units

  • Elimination of overlaps

1 mg acquired GEA in 1999; 2 mg and GEA merged in 2005 for legal and tax reasons; 3 the portfolio of GEA Group 2009 was similar to pre 1999 GEA “old”

GEA has focused its portfolio and organization in steps

GEA Group3 FS-Segment

FT-Segment HX-Segment PE-Segment ME-Segment RT-Segment

GEA Group2 mg technologies1

Specialty Mech. Engineering

Plant Eng. Chemicals Other firms

Focus on specialty mechanical engineering Portfolio analysis and HX divestiture

  • Focusing on food and

beverages as prime customer industries Carving out HX from among 5 divisions, consolidating HX factory landscape

GEA Group

A-Division R-Division C-Division M-Division D-Division E-Division H-Division P-Division B-Division FT-Segment HX-Segment PE-Segment ME-Segment RT-Segment

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GEA’s long-term strategic direction

Agenda

Pursue clear technology and market leadership Further develop food processing focus and solutions for demanding production processes Become global by getting closer to our customers Use of portfolio management as tool to leverage strengths and allocate resources Build an organization and capabilities to support strategic vision Drive sustainable value creation

Guardrails for the overall GEA strategy Guardrails for the

  • verall GEA

strategy defined by GEA Executive Board in a first step

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GEA’s long-term strategic direction

  • Foster cash generation mindset

across GEA Group

  • Grow the GEA business
  • rganically at target level above

GDP growth

  • Maintain GEA Group ROCE within

a corridor of 20-25% throughout the cycle

  • Perform prudent cash and risk

management ensuring sufficient liquidity headroom, healthy capital structure and robustness against risk scenarios

  • Sustain investment grade and

keep dividend payout ratio at a level of industry benchmarks

  • Intensify role of the GEA

Group corporate center to ensure all businesses work towards GEA Group strategic direction (strategy process)

  • Leverage cooperation

potential across businesses (synergies)

  • Strengthen value-add of

corporate center (e.g., standardized processes, bundling of knowhow, shared services)

  • Develop HR strategy and

capabilities to support growth and leadership

  • Seek balanced portfolio

(cash generation, industry and geographic diversification, and risks)

  • Divest business for which

GEA is not best owner or which cannot contribute to strategic vision

  • Develop global presence

and grow especially in emerging markets with long- term potential

  • Defend market position in

developed markets

  • Continue expanding service

business in order to ensure sustainable profitability and customer satisfaction

  • Intensify customer focus

through leveraging local sales network and key account management for major customers

  • Expand presence in

attractive niche markets within food processing

  • Opportunistically serve other

innovation-driven industries that leverage our technologies and business models

  • Avoid markets not

supported by long-term global trends, markets with high cyclicality or commoditized markets

  • Sustain technology and

innovation leadership as key USP in each market

  • Avoid markets where GEA

has significant technologic disadvantage or where GEA is disadvantaged in terms of relative market share Agenda

Pursue clear technology and market leadership Further develop food processing focus and solutions for demanding production processes Become global by getting closer to our customers Use of portfolio management as tool to leverage strengths and allocate resources Build an organization and capabilities to support strategic vision Drive sustainable value creation

Guardrails for the

  • verall GEA

strategy defined by GEA Executive Board in a first step

§1

Pursue clear technology and market leadership

§2

Further develop food processing focus and solutions for demanding production processes

§3

Become global by getting closer to our customers

§4

Use of portfolio management as tool to leverage strengths and allocate resources

§5

Build an

  • rganization

and capabilities to support strategic vision

§6

Drive sustainable value creation

GEA Capital Markets Day - GEA’s strategic transformation to “OneGEA” 7

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GEA wants to serve markets with these criteria

Customer industry willing to pay a premium for process quality and reliability Limited project risk profile, maximum project duration 1-2 years Scope of supply limited to elements directly controllable by us

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Urbanization

Shanghai necessary agricultural supply area

Illustrative

What we like about the food industry (1): Steady growth rates due to continuing urbanization

2.6 5.3

2010 2050

Emerging markets

(B)

1.0 1.1

2010 2050

Developed economies

(B)

~ 200 million people moving into cities p.a. consuming ever more processed and convenience food

Source: United Nations; Euromonitor; The Guardian; Oxford Economics; Documentation “Wie wird die Stadt satt” (ARD 24.09.2014)

By the year 2050 the world’s population will live

50%

in the cities

50%

in the countryside

300 KM

Germany

Today the world’s population lives

75%

in the cities

25%

in the countryside

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What we like about the food industry (2): Stable consumer spending also in tough times

Economically good times Economically difficult times

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Food brands thrive on long-term product consistency in taste, texture and appearance. Precise process technology warrants that.

What we like about the food industry (3): Branded food producers prefer precision equipment

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What we like about the food industry (4): Zero failure tolerance a significant entry barrier

If equipment fails e.g. in the marine industry, the industrial customer suffers some efficiency loss

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If equipment fails in the food industry, the end customer’s health could be at risk

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„Avatar” meat (…) contaminated by a phosphorescent bacteria” (China)

Source: Telegraph, 27.04.2011

„Horse meat scandal in Europe”

Source: NY Dailynews, 08.02.2013

Periodic food scandals have sensitized customers for food safety concerns

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… … … … Quality of After-Sales Service 23% Price 30% Machine Quality and Performance 71% … … Ranking of key buying criterion according to GEA customer satisfaction survey, September 20141 For GEA’s cutomers, machine quality and performance is by far #1 buying criterion

What we like about the food industry (5): Price apparently not the most decisive purchase criterion

1 Stratified sample size n=3274, external poll

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Our vision “GEA 2020”: To be the first choice of our customers

Our ARTE framework defines our strategy how to reach the target footprint “GEA 2020”

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In particular we always want to be the first choice

  • f our customers in the relevant food industry.

the globally leading engineering group to provide smart solutions to sophisticated process industries. GEA to become

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  • Strategic Roadmap “GEA 2020”
  • ARTE framework as pillars for GEA’s strategy
  • Future organizational set-up “Fit for 2020”

Agenda

1 3 2

16 GEA Capital Markets Day - GEA’s strategic transformation to “OneGEA”

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ARTE framework as pillars for GEA’s strategy

Applications Regions Technologies

Functional

Excellence

  • Exploit market

potential in target applications

  • Align GEA-wide

application strategy and customer approach

  • Capture global

growth opportunities

  • Expand local

presence

  • Coordinate regional

approaches across GEA

  • Strengthen

innovation and technological leadership

  • Foster cross-

business colla- boration in R&D

  • Increase efficiency

in operations and support functions

  • Reduce
  • rganizational

complexity

Target Footprint 2020

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Application strategy to maximally support customers in solving their process challenges

Customers …are looking for a solutions partner with end- to-end know-how, who knows the whole production process for their application Application know-how Unique selling proposition Application strategy

  • Expand GEA’s process

competencies into new applications

  • Identify attractive “white

spots” along process chains and fill gaps by acquisitions

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A R T E

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1 4 2 3 5 8 6

Targeted applications for target footprint “GEA 2020”

Grow leading position in dairy Grow leading position in liquid food Strengthen personal care Expand in animal proteins Expand in total solutions for edible oils, starch & sugar Enter confectionery, biscuits & pizza Strengthen packaging competencies Foster processing intelligence & automation

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7

A R T E

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In cheese making technology, GEA had a gap…

Milk intake & preparation Milk storage & distribution Standardization Bacteria removal (optional) Pasteurization Milk intake & preparation

  • Milking

parlor

  • Standardization

separator

  • Sterilization

separator

  • Heat

exchanger

  • Valves
  • Pumps
  • Tanks

Whey drainage & pre-press Pressing Water cooling, brining, ripening Cutting & Slicing Primary packaging Curd production Final process Press & ripe Coagulate & de-whey

  • Tank
  • Dosing unit
  • Cheese vat
  • Pressing line
  • Brining system
  • Brine treatment
  • Cutter
  • Slicer
  • Packer
  • Curd filler

Bacteria starter mixing

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A R T E

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…which GEA filled by taking over de KLOKSLAG

Milk intake & preparation Milk storage & distribution Standardization Bacteria removal (optional) Pasteurization Whey drainage & pre-press Pressing Water cooling, brining, ripening Cutting & Slicing Primary packaging Curd production Final process Press & ripe Coagulate & de-whey Bacteria starter mixing

  • Milking

parlor

  • Standardization

separator

  • Sterilization

separator

  • Heat

exchanger

  • Valves
  • Pumps
  • Tanks
  • Tank
  • Dosing unit
  • Cheese vat
  • Pressing line
  • Brining system
  • Brine treatment
  • Cutter
  • Slicer
  • Packer
  • Curd filler

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A R T E Milk intake & preparation

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Attractive market Leading market position Significant upsides

  • Rising consumption of milk and cheese products is driving the demand for production capacities
  • Market for cheese production machines grows steadily
  • Extension of GEA’s product portfolio towards full solutions provider for semi-hard cheeses
  • Leading supplier for semi-hard cheese manufacturing equipment in Western Europe
  • Innovative group with strong established R&D
  • De Klokslag’s current growth is restricted by regional range; larger volume possible through integration

into GEA network; in particular in Emerging Markets such as Latin America

  • Ability for GEA to act as full solutions provider → a key selling point in non-EU markets
  • Mutual advantages through integration of R&D resources and bundling of manufacturing

de KLOKSLAG is an ideal complement

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A R T E

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GEA’s food exposure to grow to 75% - 80%

Food Non- Food Sales exposure 2020: 75% - 80% food No 100% food exposure due to multi-purpose functionality of our products:

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A R T E

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ARTE framework as pillars for GEA’s strategy

Applications Regions Technologies

Functional

Excellence

  • Exploit market

potential in target applications

  • Align GEA-wide

application strategy and customer approach

  • Capture global

growth opportunities

  • Expand local

presence

  • Coordinate regional

approaches across GEA

  • Strengthen

innovation and technological leadership

  • Foster cross-

business colla- boration in R&D

  • Increase efficiency

in operations and support functions

  • Reduce
  • rganizational

complexity

Target Footprint 2020

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Local Emerging Markets food producers grow faster than multinationals

1 65 listed local food players in EM with sales > EUR 1bn, in total sales of EUR 210bn in FY 2013 ; 11% CAGR based on FY 2010 – FY 2013 sales in EUR Source: Thomson Reuters

Sales CAGR FY 2010-13

Local EM food producers1 32% 68%

1/3 of local players are not yet GEA customers1

GEA customers

Selection of local GEA customers in Emerging Markets

GEA Capital Markets Day - GEA’s strategic transformation to “OneGEA” 25 11%

A R T E

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China 53

GEA has still room for improvement in Emerging Markets

1Value for Germany = Index 100; Source: IMF GEA 3rd party sales in EUR million and GDP USD billion

Germany = Index 100

Countries where GEA‘s sales coverage as a % of GDP is higher than in Germany Countries where GEA‘s sales coverage as a % of GDP is lower than in Germany

Brazil 54 Argentina 82 Chile 66 Mexico 34 Colombia 23 Peru 41 Russia 79 Turkey 67 Vietnam 260 Thailand 141 Indonesia 38 South Africa 198 India 38 Germany 100

Indexation average GEA Sales/GDP per country 2011 - 20131

USA 40

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A R T E

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engineering for a better world

ARTE framework as pillars for GEA’s strategy

Applications Regions Technologies

  • Capture global

growth opportunities

  • Expand local

presence

  • Coordinate regional

approaches across GEA

  • Increase efficiency

in operations and support functions

  • Reduce
  • rganizational

complexity

Target Footprint 2020

  • Strengthen

innovation and technological leadership

  • Foster cross-

business colla- boration in R&D

  • Exploit market

potential in target applications

  • Align GEA-wide

application strategy and customer approach

Functional

Excellence

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Source: Frankfurter Allgemeine Zeitung (26.06.2014)

~ 3,500 new products entered the US food market in 2012 ~ 2,000 new food products p.a. in German supermarkets alone

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The continual market launch of new food products creates markets for innovative food processing equipment

Additionally, higher resource efficiency (e.g. power, water usage) is a major competitive advantage for an equipment supplier

A R T E

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Innovations made by GEA help industrial clients to launch new innovative products

  • Continuous process to withdraw water by freezing

instead of evaporation

GEA Juice Freeze Concentration Innovation Impact on product quality

  • Natural flavor can be preserved in the concentrate

(e.g. juices, coffee, milk)

  • Better taste and aroma of end product justifying higher price
  • Higher overall equipment efficiency due to less demanding

cleaning in place (CIP)

Benefit for industrial customers

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A R T E

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Innovations made by GEA help industrial clients to reduce total cost of ownership

GEA Niro MSD™ Spray Dryer Size 4000: Up to 700 tonnes milk powder per day

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Equivalent of ~300 truckloads

  • f raw milk per day1
  • Use scale-up algorithm based on computational

fluid dynamics (CFD) modelling and deep process know-how to design the world’s largest milk powder plant

Innovation

  • Approximately 10% lower total cost of
  • wnership (TCO)

Benefit for industrial customer Impact on costs

  • Compact spray dryer chamber
  • Simpler operation
  • Lower energy cost

1 based on assumption of 15,000 litres raw milk per truckload (4.4m litres of raw milk shall be processed to 700t milk powder)

A R T E

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engineering for a better world

ARTE framework as pillars for GEA’s strategy

Applications Regions Technologies

Functional

Excellence

  • Capture global

growth opportunities

  • Expand local

presence

  • Coordinate regional

approaches across GEA

Target Footprint 2020

  • Exploit market

potential in target applications

  • Align GEA-wide

application strategy and customer approach

  • Strengthen

innovation and technological leadership

  • Foster cross-

business colla- boration in R&D

  • Increase efficiency

in operations and support functions

  • Reduce
  • rganizational

complexity

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Current segments with diverse organizational set-up

Farm Technologies Refrigeration Technologies Process Engineering Mechanical Equipment

BU

Farm Equipment

BU

Milking & Cooling

BU

Farm Services

TC

Engin. Solutions

TC

Comp.

TC

Freezing

BU

MSP

BU

FS

BU

HOM

'Matrix' between Products and Sales 'Matrix' between TCs and Sales Matrix between TCs and Sales (SBUs for steering) Stand-alone BUs with matrix organization

= Stand-alone businesses

PD/PM

= Operations (Purchasing, Production & Procurement) = Sales only = Product Development/ Product Management

PD/PM PD/PM PD/PM PD/PM PD/PM PD/PM

PD/PM PD/PM

BU

FLC

PD/PM

Sales Sales Sales Sales Sales Operations Ops Ops Ops Ops Ops Ops Ops TC TC TC … … … SBU SBU

PD/PM PD/PM PD/PM

Sales (MCs)

Note: TC = Technology Center; MC = Market Company PE; PD = Product Development; PM = Product Management

Current structures display high complexity from a customer’s as well as from an administrative point of view

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A R T E

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  • GEA a partner

for its customers due to application know-how

  • Exploit market potential

in target applications

  • Align GEA-wide

application strategy and customer approach

Applications Regions Technologies

  • Untapped potential

mainly in Emerging Markets

  • Capture global growth
  • pportunities
  • Expand local presence
  • Coordinate regional

approaches across GEA

Target Footprint 2020

  • GEA perceived as

technology leader

  • Further strengthen

innovation and technological leadership

  • Foster cross-business

collaboration in R&D

  • High complexity in
  • rganization and no

standardization of processes

  • Increase efficiency in
  • perations and support

functions

  • Reduce organizational

complexity

Functional Excellence “OneGEA”: Closer operational and organizational integration of key dimensions to maximize value-add to customer

GEA will improve particularly with regard to regional coverage and functional excellence

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  • Strategic Roadmap “GEA 2020”
  • ARTE framework as pillars for GEA’s strategy
  • Future organizational set-up “Fit for 2020”

Agenda

1 3 2

34 GEA Capital Markets Day - GEA’s strategic transformation to “OneGEA”

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Project “Fit for 2020”: From four stand-alone Segments to two integrated Business Areas

Current Organization Future Blueprint

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Executive Board

  • Stand-alone effective Segments driving
  • wn technologies and market approaches
  • Limited group perspective and role of the

corporate center

  • Each Segment with individual go-to-market

concepts and regional footprint

  • Bundling of Segments into two BAs

according to business model logic

  • “One GEA” in countries as a platform for

growth within regions / countries

  • Strengthening and streamlining of

global group functions

  • Increased efficiency and standardization in

newly established Shared Service Center Equipment BA Solutions BA Global Corp. Center SSC RT FT ME PE Head- quarter

Regions Regions Regions Regions

Support Support Support Support

Regions / Countries

Executive Board

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Applications Regions Technologies Functional Excellence

Future organizational set-up (“Fit for 2020”) reflects all elements of ARTE strategy

Executive Board

Shared Services Center (SCC) Global Corporate Center (GCC) North America Latin America Western E. & MEA Nordics, UK/IE, & BeNeLux Asia-Pacific DACH & Eastern E.

36 GEA Capital Markets Day 2014 - GEA’s strategic transformation to “OneGEA”

Product Engineering & Development (PED) Product Management & Sales (PMS) Supply Chain & Production (SCP) Equipment Service (SER) Global Corporate Center (GCC) Technology Centers (TEC) Application Centers (APC) Solutions Service (SER) Equipment Business Area Solutions Business Area

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Future setup will significantly strengthen

  • ur core cash flow generation ability

Streamlined Capex Working Capital Discipline Stronger Top-line Growth Quantum leap on GEA Cash Flow Drivers Cost Savings

€ € € €

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Sales & Service Operations & Engineering General & Administration

“Fit for 2020” Savings: Design Teams with top-down savings mandates

  • Functional bundling in countries
  • Delayering / Increased span of control
  • Shared Service Center
  • Optimized production network
  • Leverage outsourcing
  • Increase span of control
  • Delayering / Increased span of control
  • Sales effectiveness & sales support synergies
  • Bundling of after sales

Main Levers Savings Target

GEA Capital Markets Day - GEA’s strategic transformation to “OneGEA” 38

Cost Savings at least EUR 100m p.a. Personnel approx. 1000 FTE

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“Fit for 2020” Commitment: Savings come fully on top of regular budget

Ongoing business

Growth Flat Moderate Decline Increase Slight increase Keep

New GEA

  • Volume growth
  • Operational leverage
  • Efficiency increase
  • Operational measures

Top-line Scenarios Severe Downturn

Strict Budget tracking

Operating EBITDA-Margin Drivers

  • Efficiency increase
  • Cost cutting initiatives

“Fit for 2020”

+ EUR 100m |-1000 FTE Savings by 2017 + EUR 100m |-1000 FTE + EUR 100m |-1000 FTE Severe macroeconomic downturns need to be handled separately

Strict Savings tracking

+ + + = = =

Operating EBITDA-Margin

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“Fit for 2020” savings target substantiated with detailed measures Anticipation of imple- mentation progress and cost budget overruns Realization of savings and overall budget Measure implementation Cost budget compliance Project Tracking

  • Clear responsibilities
  • Detailed milestone

plan

  • Detailed savings plan

(incl. timing, FTE, cost type)

  • Steering and

monitoring of cost drivers (e.g. FTE)

  • Easy to monitor
  • Early indicators

Cost driver development

  • Monthly review
  • Cost and FTE budgets
  • No tolerance
  • f deviation
  • Strict escalation

process

Actual Delta Target

GEA Capital Markets Day - GEA’s strategic transformation to “OneGEA” 40

“Fit for 2020” Tracking: Project progress and savings closely monitored from three angles

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Design Team has been carefully screened - incentives tied to delivering on savings and operational targets

Regions and countries

R-LAM R-NCE R-WE&MEA R-APC R-DACH&EE R-NAM

GCC SSC

G-FIN G-HR G-TAX G-IR G-CD G-CMB G-IT G-SIM G-LC SSC

Equipment BA

E-CFO E-PED E-PMS E-SER E-SCP

Solutions BA

S-CFO S-TEC S-APC S-SER GEA Capital Markets Day - GEA’s strategic transformation to “OneGEA” 41

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Major organizational design rules to warrant a leaner and better organization

Physical design of the future organization

  • Span of control of new organizational units: Increase by 2
  • Number of layers of the new organization: Reduction of 2 complete management levels

A Saving targets – top-down guidelines for target sizing of new organization

  • At least EUR 100m savings allocated to different business functions

B ARTE guardrails – adherence with the ARTE framework

  • Coordinated regional approaches across GEA with one country “Head of GEA” with own P&L

C Flexibility & Simplicity & Scalability rule

  • Reduced complexity, scalable and acquisitions easy to integrate, flexibility in downturn; “must-

have” vs. “nice to have” D “Customer First” – each organizational decision is for customers benefit

  • Implement-ability, increased customer reach & proximity

E

GEA Capital Markets Day - GEA’s strategic transformation to “OneGEA” 42

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Board:

4-7 layers apart from customers

Executive Board

4-7

layers

Customer

Board:

3-5 layers apart from customers

3-5

layers GEA taking out two complete management layers:

  • Segment Management
  • Business Unit

Management

Cutting management layers is an important design deliverable for the new organization

Future set-up Situation today

Executive Board Customer

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Executing “Fit for 2020”

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Capital Markets Day 2014

Implementation to begin in Q2 2015 after a diligent charting process

Milestone: Detailed plan for new organizational structure

GEA Capital Markets Day - GEA’s strategic transformation to “OneGEA” 44

Preparation for execution of new structure (e.g. systems adaption) Sizing of functions Detailed organizational design/blueprint (new org charts, processes, governance) Implementation and external reporting from Q2 2015 onwards 2015 2014 Strict ongoing saving tracking Preparation for implementation ”saving tracking tool”

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