GEA charts growth in revenue and order intake in 2019 with important progress achieved in group restructuring

Despite a difficult market environment, GEA charted growth in revenues and order intake.

EBITDA before restructuring expenses finished the year at the upper end of the target corridor and the forecast for return on capital employed (ROCE) was slightly exceeded. Likewise, GEA was able to implement many of restructuring measures introduced last year more quickly than expected. With these measures and its new group structure in place, GEA has laid the foundation for sustainable financial success.

Stefan Klebert, CEO of GEA Group Aktiengesellschaft, said: “Fiscal year 2019 was a year of great progress for us. Counter to the trend in mechanical engineering, we grew slightly and kept our promises. We have been working since January 2020 in the new divisional organization, which promotes an entrepreneurial approach. We even implemented the necessary restructuring measures more quickly than expected. And with Executive Board level responsibility now in place for production and purchasing, we have paved the way for further increases in efficiency.”

Revenue and ROCE slightly exceed forecast

Revenue and order intake rose during the reporting period, in spite of weakened overall economic conditions for mechanical engineering. Compared with the previous year, order intake rose lightly by 0.3 percent to EUR 4,931.1 million, setting a new GEA record. These orders include 17 major orders, primarily from the dairy and beverage industries (2018: 13 major projects). Revenue rose by 1.1 percent to EUR 4,879.7 million. A large portion of this growth is attributable to the service business, which increased by a currency-adjusted 4.7 percent, amounting to 32 percent of the group’s revenue on the reporting date. Total revenue thus topped the original forecast – which had assumed a slight decline – and even minimally exceeded the adjusted forecast from October 2019, which predicted that revenue would remain at the 2018 level. EBITDA before restructuring expense dropped by 11.1 percent to EUR 479.2 million, however was at the upper end of the originally forecast and confirmed target corridor of EUR 450 to 490 million. Return on capital employed (ROCE) in fiscal year 2019 amounted to 10.6 percent, which placed it slightly above October’s projected and confirmed target corridor of 8.5 to 10.5 percent. A major contributor to this was the reduction in working capital, which GEA reduced by more than EUR 75 million. The strong free cash flow of EUR 342.2 million meant that the group’s net financial position was improved by about EUR 100 million. At the end of 2019, GEA therefore had a net liquidity of EUR 28 million.

Restructuring expense brought forward to 2019

GEA was able to implement various restructuring measures in 2019 more quickly than anticipated. The required expense of EUR 47 million originally planned for 2020 was therefore brought forward to the end of 2019. Compared to the originally assumed amount of up to EUR 55 million, the expense for restructuring measures in 2019 amounted to a total of EUR 105 million. The difference is almost entirely attributable to bringing forward part of the restructuring expense which encompasses the reduction of roughly 800 jobs among GEA’s employees and temporary workers, scheduled to conclude by the end of 2020. Of these employees, around half left GEA at the end of 2019. In addition to the restructuring expense brought forward, the goodwill impairment of GEA’s Italian subsidiary Pavan, which did not have a cash effect, had a strong influence on consolidated profit.

Stable dividend of EUR 0.85 proposed

Owing to GEA’s solid operating result and strong cash flow, the Executive Board and the Supervisory Board will propose the payment of a dividend of EUR 0.85 per share at the Annual General Meeting. This dividend is the same as the year prior.

Focus on strategy implementation, innovation and sustainability in 2020

As of January 1, 2020, the company has had a new divisional group structure in which the individual divisions bear full responsibility for revenue and results. GEA continues to work intensively on strengthening and improving the management of its service business, which delivers attractive margins and helps GEA build long-term customer relationships.

Over the next few years, GEA will focus on rigorously implementing the goals it communicated at Capital Markets Day in 2019, including the further optimization of its production and purchasing processes. These new measures will take place under the responsibility of Johannes Giloth, who has held the role of Chief Operating Officer of GEA since January 20, 2020. Efficiency increases in the new, central purchasing organization are expected to result in savings of more than EUR 25 million in 2020 alone. Moreover, GEA is pursuing the sale of individual parts of the company, particularly those transactions that were initiated in 2019. During the coming years, GEA will also introduce a standardized SAP system worldwide to replace the numerous ERP (enterprise resource planning) systems currently in use.

Another strategic focus at GEA is sustainability. “GEA is already a trailblazer when it comes to sustainability. As a technology leader in many areas of mechanical engineering, we’re setting benchmarks. Thanks to our innovative power, we can provide our customers with increasingly efficient systems that conserve even more resources, and we are expanding this core competency even further. For instance, in 2019 we founded the Sustainable Energy Solutions initiative, which helps our customers in the food industry save up to 90 percent of CO2,” notes Stefan Klebert. “With our industry-leading know-how and value-creating innovations, we’re able to contribute to managing global challenges like climate change and food security. GEA was listed at the very outset in the DAX 50 ESG index, underscoring our pioneering role in this area.” Internally, the company is working at full speed to become even more sustainable. Last year, GEA once again improved its standing in several sustainability rankings, and was one of the few German companies to achieve an “A-” ranking, and to be included in the leading group of the world-renowned Carbon Disclosure Project. The company is also listed in the MSCI Global Sustainability Indexes with an ESG rating of "A."

Outlook for 2020: Impact on earnings due to Covid-19

“Against the backdrop of Covid-19, whose impact is currently very difficult to estimate, we have decided to provide an outlook that considers the scenarios that are most probable at this time. Accordingly, we expect revenue to decline slightly. On the basis of this negative revenue growth, we currently assume – even considering the measures we have introduced to improve earnings – a slight decline in the result: EBITDA before restructuring expense is intended to reach EUR 430 to 480 million and ROCE 9 to 11 percent. In spite of the major global challenges we face at the moment as a result of the coronavirus, we are confident that we can achieve our mid-term financial goals for 2022 in view of the optimization measures we have initiated and the fact that our end markets continue to be attractive,” explained Stefan Klebert.