GEA Presents 2018 Results and Set of Measures to Sustainably Strengthen Profitability

He also announced a Capital Markets Day for September 2019, at which he and the new CFO Marcus A. Ketter, who will join the company on May 20, will present the updated corporate strategy to sustainably strengthen profitability. Adjustments to the organizational structure are to be made public prior to that, at the end of June.

Satisfying revenue growth in 2018 and constant dividend

GEA had to contend with a good market environment in 2018, which however worsened as the year progressed. Order intake rose by 3.5 percent to EUR 4,917.7 million, but slowed down, in particular, toward the end of the year. Revenues grew by 4.9 percent to EUR 4,828.2 million, with the Homogenizers and Food Processing & Packaging product groups registering especially strong growth. Nearly all product groups and application centers posted higher revenues, with the exception of the application centers (APC) Dairy and Utilities. At EUR 518.2 million, operating EBITDA was down 8.0 percent on the previous year, yielding an operating EBITDA margin of 10.7 percent. Price pressure, product mix and detrimental exchange rates were evident, especially in the Separation, Flow Components and Milking Dairy Farming product groups.

"APC Dairy in particular fell significantly short of results expectations. To a lesser extent, price pressure, product mix and exchange rate effects also made themselves felt in the Separation, Flow Components and Milking and Dairy Farming product groups. Over the next weeks, we will have to analyze the causes of the decline and initiate respective measures to sustainably improve the results of these core activities," commented Stefan Klebert.

The Supervisory Board and Executive Board will propose that the Annual General Meeting approve payout of an unchanged dividend of EUR 0.85 per share for the 2018 fiscal year. In doing so, GEA will go beyond its fundamental target of distributing 40 to 50 percent of group earnings, thus underscoring its unaltered belief in its operational strength.

Outlook 2019

For fiscal year 2019, GEA is expecting its revenue moderately below the previous year s level, an EBITDA before restructuring measures between EUR 450 and 490 million and a ROCE between 8.5 to 10.5 percent. The difference in the expected profit margin for 2019 between this outlook and the figures communicated in the ad-hoc disclosure on 6 February (EUR 440 to 480 million) results from the initial application of IFRS 16 (plus EUR 59 million) and the inclusion of strategic projects (minus EUR 49 million) that have not yet been taken into account.

Realignment of GEA

Over the next months, Stefan Klebert - who has been a member of GEA s Executive Board since November 15, 2018 and its CEO since February 18, 2019 - will work together with the rest of the management team to formulate changes to the company s organizational structure and to update the corporate strategy. The company intends to build on its technology leadership, its strong positions in attractive markets and its high-margin service business.

"GEA doesn t have a problem with demand, it has a problem with its bottom line. But that can be resolved," said Stefan Klebert. "Demand is stable and we are definitely present in the right markets. GEA is No. 1 or 2 in very many areas. That gives us a strong basis to build on. But we need to improve our margins. Since November, I have talked to many managers, employee representatives and employees at different locations. We have identified problems and inefficiencies that are holding GEA back. We have a clear roadmap on how to tackle these issues. Some can be resolved quickly; others will take more time."

A number of immediate measures are to be implemented now.

Fundamentals of the new organizational structure

The company s business is currently divided into two business areas: Equipment and Solutions. This is to be replaced with a divisional structure. The change is designed to enhance transparency and facilitate the management of individual businesses. A further aim is to reinforce managers entrepreneurial responsibility. To date, P&L responsibility has not been adequate below the Executive Board level. GEA will retain its customer-oriented bundling of activities in country organizations and will analyze its fields of enterprise with a view to potentially strengthening its attractive service business. The new structure is to be finalized and key responsibilities defined by the end of June.

"Our employees have an entrepreneurial mindset," said Stefan Klebert. "We have to give our managers clear responsibility for revenues and earnings again so that they can act as entrepreneurs as well."

Change to the Executive Board

On March 13, GEA s Supervisory Board and Niels Erik Olsen, the Executive Board member up to now responsible for the Business Area Solutions, reached a mutual agreement concerning his immediate departure from the company. Stefan Klebert will take on responsibility for the Business Area Solutions in addition to his duties as CEO. As no successor will be nominated for Olsen s position, the Executive Board will be streamlined from five members to four.

Procurement and production synergies

Another focal point of the realignment concerns procurement. The entire Group s procurement volume amounts to around 2.5 billion euros. The goal is to achieve economies of scale by combining the three separate procurement organizations into a strong single unit and by reducing the number of suppliers. After a careful analysis, potential savings targets will be announced at the Capital Markets Day.

GEA will combine its production organizations, which were previously geared to its two business areas. That will create a sound basis for accelerating optimization of the production network, a process that has already begun. At present, the network is heavily slanted toward Europe and is, to some extent, too small-scale. The medium-to-long term goal is to enhance proximity between production plants and sales markets.

Review of portfolio

At the Capital Markets Day, the Executive Board will also present fundamental ideas on the company s core business and potential non-core business. These ideas will be the product of a detailed analysis of the portfolio that has already commenced. An immediate stop to acquisitions has been imposed: no significant acquisitions will be made until the company has completed the organizational realignment.

As Stefan Klebert explained: "GEA s portfolio is highly diverse. Businesses differ significantly with regards to profitability and synergies. We will therefore consider their potential for synergies and which businesses add value for the Group."

Improvements in IT, HR and finance

When it comes to IT, HR and finance, considerable improvements in service quality need to be made at the Shared Service Center. As an immediate measure for IT, the Executive Board decided to recruit around 50 additional IT workers at various GEA locations. Some of these employees have already taken up their positions. In addition, contracts with the outsourcing service provider are to be renegotiated so as to achieve satisfactory service levels in all three areas. A working group led by Stefan Klebert has been set, which will work together with the provider to rectify the problems quickly. Another key IT issue as of May will be harmonization of the Group s ERP landscape. The new CFO, Marcus A. Ketter, will lead this project. At the Capital Markets Day, he wants to present a clear timetable for consolidating the company s current landscape of almost 100 different ERP systems, some of which are outdated.

Enhanced transparency for capital markets

Marcus A. Ketter will also focus on enhancing GEA s financial transparency. GEA will revise its segment reporting, focus on unadjusted figures in the future, and introduce new KPIs. With immediate effect, the company will adjust EBITDA for restructuring costs only. Up until now, the group had also adjusted EBITDA for what were known as strategic costs, which were recently in the double-digit-million range. The cash flow driver margin will be replaced by return on capital employed (ROCE), an established ratio.

"We want to regain the confidence of capital markets," said Stefan Klebert. "We have a lot of work ahead of us. But I am convinced of GEA s future potential. We have motivated employees with impressive expertise as well as tried-and-tested products, services and technologies. Together, we can get GEA back on track."