GEA’s strategic transformation to “ OneGEA ” Jürg 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 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%. GEA Capital Markets Day - GEA’s strategic transformation to “ OneGEA ” 2 engineering for a better world
Agenda • Strategic Roadmap “GEA 2020” 1 • ARTE framework as pillars for GEA ’ s strategy 2 • Future organizational set-up “Fit for 2020 ” 3 GEA Capital Markets Day - GEA’s strategic transformation to “ OneGEA ” 3 engineering for a better world
The steps of GEA’s strategic transformation Where are In which efficient With which With focus on which we driving organizational setup? core businesses? growth areas? GEA? Divestment of HX Segment 2014: Concept 2012 – 2013 2012 2013 2015: Implementation “Fit for 2020” “GEA 2020” GEA GEA long-term strategic target footprint reorganization strategic portfolio review direction GEA Capital Markets Day - GEA’s strategic transformation to “ OneGEA ” 4 engineering for a better world
GEA has focused its portfolio and organization in steps 2003 – 2008 2009 – 2014 Focus on specialty Carving out HX from among 5 divisions, Portfolio analysis mechanical engineering consolidating HX factory landscape and HX divestiture mg GEA Group 2 GEA Group 3 GEA Group technologies 1 Specialty Mech. FT-Segment HX-Segment ME-Segment FT-Segment HX-Segment ME-Segment PE-Segment RT-Segment PE-Segment RT-Segment Other firms Engineering FS-Segment Chemicals Plant Eng. R-Division C-Division M-Division D-Division H-Division P-Division B-Division A-Division E-Division • • • Divestiture of Reorganization into 5 distinct segments Focusing on food and Chemicals & Plant and 31 business units beverages as prime Engineering, Closure customer industries • Elimination of overlaps of Zinc Smelter 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 Capital Markets Day - GEA’s strategic transformation to “ OneGEA ” 5 engineering for a better world
GEA ’ s long-term strategic direction Agenda Pursue clear technology and market leadership Guardrails for the Further develop food processing focus and solutions for demanding production processes overall GEA Become global by getting closer strategy defined to our customers by GEA Executive Guardrails for Use of portfolio management as tool to leverage strengths and allocate Board in a first step resources the overall GEA Build an organization and capabilities strategy to support strategic vision Drive sustainable value creation GEA Capital Markets Day - GEA’s strategic transformation to “ OneGEA ” 6 engineering for a better world
GEA ’ s long-term strategic direction • Intensify role of the GEA • Foster cash generation mindset • Expand presence in • Sustain technology and • Develop global presence • Seek balanced portfolio Agenda across GEA Group Group corporate center to attractive niche markets innovation leadership as (cash generation, industry and grow especially in ensure all businesses work • Grow the GEA business and geographic key USP in each market within food processing emerging markets with long- §6 §1 §3 §5 §2 §4 Pursue clear technology and market towards GEA Group strategic organically at target level above term potential diversification, and risks) leadership • Opportunistically serve other • Avoid markets where GEA direction (strategy process) GDP growth • Defend market position in • Divest business for which has significant technologic innovation-driven Further develop food Pursue clear Build an Become global Guardrails for the Further develop food processing focus Use of portfolio • Leverage cooperation Drive • Maintain GEA Group ROCE within and solutions for demanding industries that leverage our disadvantage or where GEA developed markets GEA is not best owner or potential across businesses processing focus production processes a corridor of 20-25% throughout overall GEA management as organization technologies and business is disadvantaged in terms of which cannot contribute to technology • Continue expanding service by getting (synergies) sustainable the cycle strategic vision models relative market share and solutions for Become global by getting closer business in order to ensure strategy defined tool to leverage • Strengthen value-add of and capabilities • Perform prudent cash and risk to our customers • Avoid markets not closer to our and market sustainable profitability and value creation corporate center (e.g., demanding by GEA Executive management ensuring sufficient strengths and supported by long-term customer satisfaction to support Use of portfolio management as tool standardized processes, liquidity headroom, healthy capital production to leverage strengths and allocate leadership customers global trends, markets with Board in a first step bundling of knowhow, shared allocate resources • Intensify customer focus structure and robustness against resources strategic vision high cyclicality or services) risk scenarios processes through leveraging local Build an organization and capabilities commoditized markets • Develop HR strategy and sales network and key • Sustain investment grade and to support strategic vision capabilities to support growth account management for keep dividend payout ratio at a and leadership Drive sustainable value creation level of industry benchmarks major customers GEA Capital Markets Day - GEA’s strategic transformation to “ OneGEA ” 7 engineering for a better world
GEA wants to serve markets with these criteria Customer industry willing to Limited project risk profile, Scope of supply limited pay a premium for process maximum project duration to elements directly quality and reliability 1-2 years controllable by us GEA Capital Markets Day - GEA’s strategic transformation to “ OneGEA ” 8 engineering for a better world
What we like about the food industry (1): Steady growth rates due to continuing urbanization Today the world ’ s Urbanization Illustrative population lives Developed economies (B) 300 KM 1.1 1.0 50% in the cities 2010 2050 necessary agricultural 50% supply area in the countryside Shanghai Emerging markets (B) 5.3 By the year 2050 the 2.6 world ’ s population will live 75% Germany in the cities 2010 2050 ~ 200 million people moving into cities p.a. consuming 25% ever more processed and convenience food in the countryside Source: United Nations; Euromonitor; The Guardian; Oxford Economics; Documentation “Wie wird die Stadt satt” (ARD 24.09.2014) GEA Capital Markets Day - GEA’s strategic transformation to “ OneGEA ” 9 engineering for a better world
What we like about the food industry (2): Stable consumer spending also in tough times Economically Economically good times difficult times GEA Capital Markets Day - GEA’s strategic transformation to “ OneGEA ” 10 engineering for a better world
What we like about the food industry (3): Branded food producers prefer precision equipment Food brands thrive on long-term product consistency in taste, texture and appearance. Precise process technology warrants that. GEA Capital Markets Day - GEA’s strategic transformation to “ OneGEA ” 11 engineering for a better world
What we like about the food industry (4): Zero failure tolerance a significant entry barrier If equipment fails e.g. in the marine If equipment fails in the food industry, the end customer ’ s health could be at industry, the industrial customer suffers some efficiency loss risk GEA Capital Markets Day - GEA’s strategic transformation to “ OneGEA ” 12 engineering for a better world
Periodic food scandals have sensitized customers for food safety concerns „ Horse meat scandal in Europe ” Source: NY Dailynews, 08.02.2013 „Avatar” meat (…) contaminated by a phosphorescent bacteria” (China) Source: Telegraph, 27.04.2011 GEA Capital Markets Day - GEA’s strategic transformation to “ OneGEA ” 13 engineering for a better world
What we like about the food industry (5): Price apparently not the most decisive purchase criterion Ranking of key buying criterion according to GEA customer satisfaction survey, September 2014 1 Machine Quality and Performance 71% Price 30% Quality of After-Sales Service 23% … … … … … … For GEA ’ s cutomers, machine quality and performance is by far #1 buying criterion 1 Stratified sample size n=3274, external poll GEA Capital Markets Day - GEA’s strategic transformation to “ OneGEA ” 14 engineering for a better world
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