gcc kepler cheuvreux conference on roadshow and conferences q3 2015 gcc frankfurt...~ 2,000 new food...
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Frankfurt, January 19th, 2016
GCC Kepler Cheuvreux Conference
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
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engineering for a better world
GEA is a global leader in equipment and process technology providing innovative solutions
for smart food processing and for a more efficient use of energy resources.
GEA in summary
Sales
EUR 4.5bn (FY14)
Operating EBIT Margin
11.4% (FY14)
Employees
~18,000 (Sep 15)
Market Cap
>EUR 6bn (Sep 15)
Dairy Farming Dairy Processing Beverages Food
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engineering for a better world
You are in touch with food processed by GEA equipment every day…
GEA in summary
…we are all this and more every day.
Every 4th liter
of milk processed is
handled by GEA
equipment.
Every 3rd instant
coffee line has been
built by GEA.
Every 3rd chicken
nugget is processed
with GEA
equipment.
Every 2nd liter of
beer is brewed using
GEA equipment
and solutions.
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engineering for a better world
GEA’s food exposure 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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engineering for a better world
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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engineering for a better world
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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engineering for a better world
What we like about the food industry (3): Zero failure tolerance a significant entry barrier
If equipment fails in the food industry, the end-consumer’s health could be at risk
Would you as a food producer save money on a machine risking a food scandal
if the machine is not working properly?
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engineering for a better world
…
…
…
…
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 customers, machine quality and performance is by far #1 buying criterion
What we like about the food industry (4): Price apparently not the most decisive purchase criterion
1 Stratified sample size n=3274, external poll
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engineering for a better world
Source: Frankfurter Allgemeine Zeitung (26.06.2014)
~ 3,500 new products p.a. entering
the US food market
~ 2,000 new food products p.a.
in German supermarkets alone
What we like about the food industry (5): Continuous launch of new products to stimulate demand
Additionally, higher resource efficiency (e.g. power, water usage) is a major competitive
advantage for an equipment supplier
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engineering for a better world
~2%
~12%
~32%
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
Top Customer Top 10 Top 50 Top 100 Top 150 Top 200
What we like about the food industry (6): GEA’s client base is highly fragmented
Cumulative Revenue Share
Number of customers
~ 30% of the Top 50 customers
are already coming from
Emerging Markets
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engineering for a better world
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
11%
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engineering for a better world
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”
In particular we always want to be the first choice
of 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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engineering for a better world
ARTE framework as pillars for GEA’s strategy
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
organizational
complexity
Target Footprint 2020
Applications
• Exploit market
potential in target
applications
• Align GEA-wide
application strategy
and customer
approach
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Project “Fit for 2020”: From four stand-alone Segments to two integrated Business Areas
Former organization New current organization
Executive Board
• Stand-alone effective Segments driving
own 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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engineering for a better world
A pplications R egions T echnologies Functional E xcellence
New current 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.
Product Engineering & Development
Product Management & Sales
Supply Chain & Production
Equipment Service
Global Corporate Center (GCC)
Technology Centers
Application Centers
Solutions Service
Equipment Business Area Solutions Business Area
A
R
T
T E
E
T
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> 50% of the targeted FTE reductions implemented in 2015
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“Fit for 2020” continues to proceed on track
496 339
830
FTE as of
31.12.2014
17,570
FTE additions
due to M&A &
consolidation
(prelim.)
FTE as of
31.12.2015
(prelim.)
Operating
FTE
reduction
(prelim.)
18,243
Structural
"F2020" FTE
reduction
(prelim.)
Agreements secured with >400
FTEs to leave the company in the
coming months
Transfer of transactional functions
to shared service center locations in
Eastern Europe and East Asia has
begun
Agreements have meanwhile been
reached with the works councils in
almost all countries including
Germany, France and Italy
engineering for a better world
8.8%
6.8%
8.4%
10.5% 10.3% 10.6% 11.4% 11.6%
2008 2009 2010 2011 2012 2013 2014 Q3 15LTM
2 1 2017 12 13 2020
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%
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Upside:
• Service
• Op. leverage
• Underperforming unit Min. 13%
Max. 16%
engineering for a better world
Financial Targets
FY 2014 - 2020
CAGR Organic Sales Growth FY 2014 - FY 2020: 4% to 6%
FY 2017 - 2020
Service to Sales Ratio: ~30%
Operating EBIT Margin: 13% to 16%
Working Capital to Sales Ratio: 10% to 12%
Capex to Sales Ratio: 1.5% to 2.0%
Cash Flow Driver Margin: 12% to 15%
ROCE: 20% to 25%
Net Effective Tax Rate: 24%
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Strong focus on ROCE and cash generation
18.6%
16.7%
18.8% 19.3% 19.6%
22.1%
24.7% 25.0% 25.6% 26.4% 26.6% 26.7%
25.7%
4.6% 5.0%
7.4% 8.3% 9.0% 9.6% 9.7% 9.3% 9.3%
10.1% 10.2% 10.5% 10.7%
Q3 12 Q4 12 Q1 13 Q2 13 Q3 13 Q4 13 Q1 14 Q2 14 Q3 14 Q4 14 Q1 15 Q2 15 Q3 15
ROCE (average LTM) Cash Flow Driver Margin (LTM)
1 when “Fit for 2020” started and in accordance with our guidance on operating EBITDA; Until Q1 2014 using reported EBITDA/EBIT: ROCE LTM = reported EBIT (LTM) / Capital employed excluding goodwill
from the acquisition of the former GEA AG by the former Metallgesellschaft AG in 1999 (average LTM) and CFD LTM = (reported EBITDA (LTM) – Capex (LTM) -/+ Change Working Capital (LTM)) / Sales (LTM)
ROCE and Cash Flow Driver Margin: since Q1 2014 using operating EBITDA/EBIT1
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Sources of funds:
Significant cash flow 2015 - 2017
Stronger cash generation going forward leading to higher dividend payout ratio
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
[EURbn] 1. Dividend payments: Change of payout ratio
from 1/3 to 40-50% of net income
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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
7
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engineering for a better world
Example how GEA executes its application strategy
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
Milk intake & preparation
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De Klokslag CMT for smaller lines
engineering for a better world
Acquisition criteria focus on strategy and value creation
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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engineering for a better world
Steady growth rates
(catch-up in Emerging Markets)
Superior margin levels
(high technological requirements; high barriers to entry)
Food safety concerns
Innovation for resource efficiency
(power, water, etc.)
Product Innovation
(continuous launch of new products to stimulate demand)
Summary: What we like about the food industry
1l 10l
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Preliminary FY15 order intake
1,024 1,127
1,170 1,149
1,168 1,068
1,157 ≥ 1,240
2014 2015
Order Intake
≥ 4,585 4,520
Q1
Q2
Q3
Q4
D ≥ +1%
D -9%
D -2%
D +10%
D ≥ +7%
[EURm]
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engineering for a better world gea.com