Good day, and thank you for standing by. Welcome to the GEA Group AG Pre-Close Call, Third Quarter 2024 . At this time, all participants are in listen-only mode. After the speaker's presentation, there will be the question and answer session. To ask a question during the session, you need to press star one one on your telephone keypad. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one one again. I would now like to hand the conference over to our first speaker today, Oliver Luckenbach, Head of IR. Please go ahead.
Yeah, thank you very much, Nadia, and good afternoon, ladies and gentlemen, and a warm welcome to our Q3 2024 Pre-Close Call. With me here are my deputy, Rebecca, and Eduard. As today's call will contain forward-looking statements, it will be conducted according to our disclaimer. I will not read the disclaimer, but please be aware of the cautionary language that is included in our Safe Harbor statement, which is part of our presentations that you can find on the internet. We will now address eight topics, and afterwards, you will have time to ask us some questions. First topic: group guidance, full year 2024.
We confirm the group guidance we have given for full year 2024, and as you might have in mind, we have upgraded our guidance with the H1 results, so we guide for a full year 2024 organic sales growth target of 2%-4% growth. EBITDA margin before restructuring expenses is expected to be between 14.9% and 15.2%, and our return on capital employed, also before restructuring expenses, is expected to be in the range of 32%-35%. With regards to customer industries, that's the second topic. In the food area, we have seen a very good growth contributor in the first half of this year, and the market environment is currently seen as stable to positive by the colleagues in our business, depending on the specific application.
On the beverage side, that was a strong business in 2023. In 2024, some projects are postponed or are just taking more time in the negotiations, but we managed to secure two large orders in the second quarter of this year in the LPT business and on the SFT business, the equipment business is seen as positive. On the pharma side, has been a growing customer industry in the first half of this year, and we see a good pipeline. However, investment decisions take more time due to the overall economic situation. Dairy farming, here, the market sentiment has not massively changed since the first half of this year, with the known challenges, still high interest rates, some downward pressure on milk prices in some regions, for example, China.
Dairy processing, here we see some pickup in our pipeline on the project side, but negotiations are taking time, more time, particularly with larger greenfield projects. So the market and the market development in the equipment business for dairy processing is seen as stable in the SFT area. On the heat pump side, here, the market is still growing as expected. Topic three is order intake. So overall, we see a good pipeline, but the postponements, especially of large orders, continue. In this context, please be aware of the relatively high comparison base of large orders of EUR 138 million in the third quarter of last year.
But we have a very solid base business and a strong service business, and therefore, we expect that order intake in the second half of this year will not only be higher than the comparable second half of last year, but also better compared to the first half of this year, due to our strong pipeline of large orders and the interest peak, which is now behind us. On the FX side, in order intake, here, we see that it's getting less negative. In Q3 last year, it was still minus 7%. Q4 last year, the negative FX impact was minus 5.4%, minus 3.9% in the first quarter of this year, and minus 3.2% in the second quarter of this year.
So for Q3, it should be lower than in the second quarter, and here the number was - 3.2%. That gets me to our fourth topic, sales. Here, you should expect for Q3 a number which is more or less in line with the guided range for the full year, so organic sales growth of 2%-4%. And here is a similar picture with regards to FX. It's also getting less negative. Again, here are some numbers from the past. Q3 last year was minus 6%. Q4 last year was minus 4.3%. Q1 this year, the negative impact was minus 5.0%. In Q2, it was minus 3.0%. So also here, for Q3 2024, you should expect a lower number compared to the second quarter of this year.
EBITDA margin before restructuring expenses, that's topic number five. Here in Q3, we expect, so overall, the margin in Q3 to be in line with what is needed, so to speak, to achieve our full year guidance of 14.9%-15.2%. That's it from my side, and with that, I pass over to Rebecca.
Thank you, Oliver, and hello, everybody. Let me give you some statements, what to keep in mind for our cash flow in Q3, so that's topic number six. As you all know, CapEx will be very much H2 driven. We had EUR 68 million of CapEx in the first half of 2024, and are guiding for around EUR 240 million for the full year 2024. So the CapEx will be mainly used for our new revitalization plant in Elsdorf, Germany, as well as the New Food test center in the United States. Net working capital to sales ratio is expected to be within the guided range of 8%-10%. We would also like to give you an update on our ongoing share buyback program, which is topic number seven.
As of last week, Friday, so the 27th of September, we executed EUR 228.6 million, so 57% of the EUR 400 million share buyback program. This means we bought back so far 6.15 million shares, which is 3.6% of our shares outstanding. The average price paid was EUR 37.14, so well below yesterday's closing price of EUR 44.86. Just as a reminder, the program will run until early 2025. The eighth and last topic is actually what else to keep in mind. So first of all, depreciation and amortization. In the first half of 2024, we had EUR 100 million in depreciation and amortization, and we are guiding for the full year 2024, around EUR 200 million.
The financial results, so the sum of interest income and interest expense, has been EUR -12 million in the first half of 2024, and we are expecting around EUR -25 million for the full year 2024. Tax rate has been 24% in the first half of 2024, and we are expecting around 23% for the full year. The weighted average number of shares used to calculate basic and diluted earnings per share has been 169.1 million in the first half, and this is going down to 168.5 million in the first nine months. If you look only at Q3 2024, we are talking about around 167.4 million as the weighted average number of shares.
This concludes our statements, which we wanted to share with everybody, and we are now opening up the line for any questions you might have. Dear Nadia, please start the Q&A session.
Thank you so much. Dear participants, as a reminder, if you wish to ask a question, please press star one one on your telephone keypad and wait for a name to be announced. To withdraw a question, you can press star one one again. Please stand by, we'll compile a Q&A roster. This will take a few moments. Once again, if you wish to ask a question, please slowly press star one one. And now we will take our first question. And the question comes to line of Sven Weier from UBS. Your line is open, please ask your question.
Yeah, good afternoon, and thanks for doing the call and taking my questions. The first one is regarding your order intake guidance for the second half. I mean, to what extent should we assume that this is kind of a back-end loaded guidance? Because I can hear the base business is good, but I think to make the guidance, you also need better large orders, and you talked about rates and slower decision-making. So should we think this is kind of a back-end loaded guidance, or does it also refer to Q3 specifically?
Yeah, thank you very much, Sven, for your question. As you know, we decided not to give these kind of, let's say, detailed guidance for a particular quarter. I've tried to pin a little bit the environment for you, that on the one side, we still have, let's say, a very difficult, let's say, environment in terms of large orders. This still has to do with the still high interest rates. We have now seen it's a good thing declines of interest rates not only here in Europe, but also in the United States, so this should then help. The pipeline, as I said, is very, very good.
Also in terms of the level of large orders of 138 million EUR in Q3 last year, that was a relatively high level. Probably also, if you look into your model, you will find that. However, on the other side, as I've mentioned, the base business is a very good business, and you also know from the first half of this year at least, that we had more than 10% growth in the service business. We also highlighted this at the CMD just two days ago. So from that perspective, we feel comfortable with what we said regarding the H2 order intake for this year.
Thank you. The second question I had, if I may, was just following up on your dairy comments, because I guess we've all seen with record butter prices, where the U.S. milk prices are almost at an all-time high, and we know this also has to do with the supply constraint, so maybe less favorable, but would you not think that this generally very positive price environment, very good milk feed price ratios, should eventually also lead to more activity on the dairy farming side? Is there always kind of a delay between those developments?
I would say, in general, Sven, you're right, that if you look on a global scale, on the milk feed price ratios, if I look at the ifcndairy.org data, that looks actually like a healthy milk feed price ratio. However, what we have heard from our colleagues, that there's still actually high interest rates impacting the decision making or the investment decision of the farmers, and that in certain region, I think it always depends, obviously, on the milk price in specific regions, and in some regions there is still downward pressure on milk prices, but I think what you mentioned in terms of the global environment, on a global scale, it looks like moving into the right direction.
Can I have a third question, or are we limited to two, or?
No, please, one more.
Yeah.
Three.
There's one last question.
You're limited to three, Sven.
Yeah. Thanks for taking that one. I was just that I understood your margin comments right, because I think you said the Q3 margin will be in line, kind of, to achieve the full year range, right? Which is 14.9%-15.2%, but Q3 last year was 15.3%. So, what's your guidance meant to say, that Q3 will be in the range? Or just remind me how you meant the guidance.
Yeah. So Sven, right now, after the first six months, we are at 14.9%, huh? We already saw in Q2 a margin which was at 15.2%. And let's say for the full year, not only to end up at the lower end at 14.9%, but at least within the range or at the upper end of the range, for sure, we need then also more than... Or we need 15% or more than 15%, then also for the third and the fourth quarter, and that is how I meant the guidance. So, for sure, we need a little bit more than what we have seen in the first half so far.
Understood. Thank you, both.
You're welcome.
Thank you. Dear participants, if you wish to ask a question, please press star one one on your telephone keypad and wait for your name to be announced. Dear speakers, we'll just give a moment for all our participants to give the last chance to press star one one if you have any questions. Thank you. There are no further questions for today. I would now like to hand the conference over to Oliver Luckenbach for any closing remarks.
Yeah, that was very quick, but maybe nevertheless, maybe ask one more time the participants, just to make sure that there is no additional question anymore, because also this call will then be, let's say, the last call before we start into our quiet period, and we cannot take on any further calls now after this call. So just maybe as we have still some 15 minutes, maybe one final reminder to the audience, if there's any further questions, then please ask now. Yeah.
Yes, of course. Dear participants, just as a reminder, please ask your question if you have a moment, and press star one one. And now we're going to take our next question for today. The second comes from the line of Max Yates, from Morgan Stanley. Your line is open, please ask your question.
Thank you. Good afternoon, Oliver. Just could I ask a couple of questions? Just firstly on pricing. I just wanted to know whether have you during the quarter or do you plan to before year end put through any price rises across the businesses?
Yeah. So let's say I'm not aware of any, let's say, additional price rises or let's say new big measures here, which is also not really, let's say, necessary due to the overall also declining prices, let's say, on the input cost side. However, as you know, each and every of our business manager is requested to see what is possible in terms of pricing. So wherever possible, especially in all areas where we have or where we feel we have a competitive advantage, then our salespeople are, let's say, requested to go for further price increases. That is actually also a topic we mentioned, we talked about at the CMD value-based pricing.
There's a lot of new products on the market where we feel the customer has a real benefit, and if that's the case, then for sure we also try to increase prices here. But there's, let's say, no big announcement across all divisions or something like that, that you need to go for further price hikes. Also, as you have seen, at least in the first six months, a very good development on the gross margin side and EBITDA margin side. So from pricing trends, all good, I would say.
Okay, maybe just another couple of quick questions. Just you mentioned helping giving us the FX guidance. Obviously, we've had some US D weakening. I just wanted to understand, is there any effect on the margin that you foresee from sort of weaker dollar? Obviously, you've got quite a European production, quite a heavy European-heavy production footprint. Anything that you would comment on there, on thinking about the margins impact from FX?
Yeah. You are right with regard to the production footprint, which is more than also focused here in Europe. But also, looking back or thinking back, we never had huge, let's say, margin impacts during these times of, let's say, a little bit more volatile FX environment. So, so far, also internally, I've heard nothing that anybody mentioned anything here to me. So from that perspective, I would not expect here any big impact. Yeah.
Maybe one comment from my side here, Max, is that when we talked about FX, what Oliver mentioned, this was always about translational FX impact, not transactional. Because transactional, e verything in terms of transactional is directly hedged, so it's only the translational impact we're talking about.
Okay, so you have no transactional exposure?
The transactional exposure is hedged.
Okay. Fine. Okay. That wasn't my sort of understanding, but anyway. Okay. And then, just maybe sort of finally, just on the order intake, you obviously mentioned a better sort of second half. I mean, do you think, given where your sort of sales growth guidance is for the full year, would you expect to be at a positive book-to-bill over one times for the full year?
Yeah, that's a million-dollar question. At this point in time, there's still some months to go. No, I wouldn't make any comment here other than what I've just said before, that overall, not only looking into the pipeline, but also in base business, service business, that makes us quite comfortable.
Okay, and just to clarify finally on the sales guidance, you said growth will be 2%-4% this quarter, organically. That was the message, within the 2%-4% range for the quarter. Is that correct?
Yeah, I said, somehow so need to be then as the quarter was, but should be in the somewhere also in or around this guidance, yeah, of 2%-4%.
Understood. Thanks for doing the call back. Thank you.
Max, you're welcome.
Thank you. Now we're gonna take our next question. The question comes from the line of Klaus Bergelind from Carnegie. Your line is open, please ask your question.
Thank you. Hi, Oliver. Sorry I was late on the call, but can you just comment on the large order comp that you made earlier? Because obviously, it's indeed a very tough comp year over year, but did you make any comment there on the sequential order development, where I think you had very large orders over 15 million, or close to 100 million in the second quarter, 98 million? Because obviously, year over year, yes, that's a tough comp, but I'm curious about larger orders sequentially. I don't know if you said anything, and apologies again for being late on the call.
Yeah. No, no, Klaus, no problem at all. So no, I cannot and will not make any new comments here compared to what I said before. So 138 was a, yeah, relatively high level last year. And also as our COO is saying, and that is still the case, the timing of large orders is always very, very difficult. And if you are lucky, then you have, you know, one, two, or three, or four orders in a quarter, and sometimes it's maybe a little bit less, or in other very good quarters, more. That's always hard to predict.
But what is important to us, and, you know, we also highlighted, this also, let's say, with everything we have in our pipeline, you know, looking forward, we are in steady contact and steady negotiations with our customers. We know that there's a lot in the pipeline, and that gives us, let's say, the confidence to make this comment on overall, H2 compared to H2 last year and H1, this year.
Can I just sort of ask in a different way? I, I think in the second quarter, it was not the very large orders that was the, the issue. It was more sort of one notch below that level, mid-size, large, if we can call it that. When you made that comment, did you refer to any sort of specific category, or was that an overall comment? 'Cause obviously-
No, no-
If you continue.
No, espec-
Yeah.
Especially, larger orders. Yeah, so, so about 15 million. Yeah, so that was about-
About EUR 15 million, okay.
Because I've mentioned, and that is, okay, base business, you, I know that there's not this, the definition, but, let's say overall without having, for sure, at this point in time, any knowledge on the certain categories, but overall, let's say the business in below fifteen million, we see a good development and also service, on the service side as well.
All right. My absolute final one is on the, on the bridge, and I'm thinking about obviously the wage inflation and then procurement, manufacturing. You had a Capital Markets Day this week, where you laid out the, the COGS ambition a bit longer term, but can you remind us about how these components sort of will phase through the year for the current program, not sort of the extended program?
What we also said at the CMD, and this was also to a certain extent, let's say, a new number that we are expecting around about EUR 140 million of savings this year. So far we said, around about EUR 120 million. That was also partly the reason why we have increased the guidance a couple of months ago with the release of our H1 numbers. So, from that perspective, Johannes and his team, they are just doing a great job. Here, also slightly ahead of the EUR 150 million target we set out for 2026.
So from that perspective, that is also something you can expect then for the second half of this year, some more positive development or positive on the COGS side as well.
Thank you. Thank you. Thanks a lot, Klaus. Dear participants, as a reminder, if you wish to ask a question, please press star one one on your telephone keypad and wait for your name to be announced. We encourage everyone to actively participate and ask any questions you may have on this call. Your input and curiosity are highly valued, and we wish to create an open and engaging environment where all voices are heard. Thank you, and now we will take our next question, and the question comes to line of Sven Weier from UBS. Your line is open. Please ask your question.
Yeah, sorry that you have to hear my voice again now, but thanks for giving me the chance. Now, just a quick follow-up on the previous question from Max on the order intake, because my audio was a bit bad at that point. Did you say that you expect the order intake to also grow 2%-4% organically this year? Or was it kind of a book-to-bill of one, or what was your statement, Oliver?
Yeah. First of all, it's good to hear your voice, and especially due to the fact that you have not been able to be in Amsterdam at our CMD. So yes, it's good to hear your voice.
Thanks.
But no, no, I didn't mention anything on, let's say, organic sales growth for the intake. I also cannot answer the question on the book-to-bill, where it might be.
Okay.
I've just repeated what I said before, that overall we see a good pipeline and are confident for H2.
You mentioned the CMD. Can I just also follow up with one or two questions on the CMD?
Yeah, we have. Yeah, yeah, please do so.
And, you know, I was just curious because when we think about the 2030 guidance, you've chosen a different approach than with 2026, because you're now guiding sales above five instead of a range of four to six, and you're now guiding a margin range instead of saying, let's say, higher than 17, higher than 18. And I was just wondering, what any specific reason behind why you've chosen a different approach to the guidance this time?
Yeah, I think what you can say, and maybe what you have also learned from the CMD, that we really have, and now, in particular, Stefan talked about also the verticals. So we really think that looking at. We know how broad our portfolio is, but we had a, we have a lot of great technologies. We have a lot of innovations coming to the market. Also, Johannes talked about this, as Stefan talked about, the different verticals. So that gives us the confidence that we can also, again, as a CAGR, more than 5% until 2030.
And with regards to the margin, wider corridor. Yeah, maybe also here, let's say, some learnings from the past couple of years, when we have given the guidance in 2021 for the margin, that the world was in more or less perfect shape. We all know what has happened since then with COVID, with Ukraine, now with the Middle East and so on and so forth. We had supply chain challenges and so on and so forth. For that reason, that could also maybe then be an idea to have a rather corridor than only a specific number. But it's also an ambitious corridor, and we will work hard to make this happen.
The other one I had was just on the Q&A, on the G&A point, where you wanna improve 1.5% on margins. I mean, first of all, I was wondering, because I think your G&A are kind of almost double than the best in class in terms of percentage of sales. So would you say that there's more upsides baked in? And secondly, I still remember from the old days, the former GEA Fit for 2020 program, and I think that was already also an approach to make the company more efficient, to streamline the organization, to do away with, you know, too many local entities, and for some reason it obviously failed.
So what are the learnings from this exercise that, you know, GEA has tried in the past, and how do you do it differently this time?
I think, first of all, Bernd and his team, they have spent a lot of effort looking into this, now what is possible, and we have now described here the three main pillars we found here in G&A. On the other side, we also know that we are not in best in class with our ratio on the other side, and that is also something you mentioned, and also that's something we took into account. There's still some skepticism also with regards to, let's say, here in the further announcements, in reducing number of legal entities or ERP integration, and so on and so forth.
And so from that perspective, we said, "Okay, let's give a number that we are very much, let's say, confident on, and let's do the first steps." I think also here we need to deliver on that number, and then let's have a look at the development after two, three, or four years to see if even more is possible. But for the time being, I would see this as a really number we checked up and down, a number we can really stick to, knowing that this even if we achieve it, then we are maybe not yet best in class. But let's do the first steps first before announcing even more ambitious targets here.
The learnings? I mean, because, again, I remember some of the things were part of the plan ages ago, and it didn't work out. Maybe it's too long ago to have learnings from this now.
No, I think then I think it's I mean OneGEA was tackling a lot of issues at the same point of time, and we all know where it ended in the end. So it was not only all about G&A. G&A was an area in focus, you're absolutely right. But I mean the way to tackle G&A under OneGEA was about a completely new organizational setup for the company, and this is nothing what we are talking about now. So it's a completely different approach. It's not about reorganizing the business and giving everything a new structure, but it's really about decoupling, let's say, G&A expenses from the sales growth, and to really focus on the ERP side, to focus on actually automation. So it's I would say it's a completely different approach, how we are doing it now.
I think since OneGEA , I mean, when the new management team came in in 2019, the first years have been all about, let's say, fixing the issues and working on the fundamentals of the company to improve profitability. And at that point of time, the focus was not yet on G&A. So it's only actually now, after having the company really in a good shape and having it on a good profitability level now, that we are now thinking about the, let's say, the next phase, if you wanna call it that way.
Yeah, it definitely sounds more evolutionary than revolutionary back in the days. So u nderstood. Thank you very much, both.
Thank you.
You're welcome.
Thank you. Dear participants, as a reminder, if you wish to ask a question, please press star one one. Thank you. Dear speakers, there are no further questions for today. Oliver, over to you.
Yeah, Nadia, thank you very much, again. Yeah, dear participants, many thanks for your time this afternoon for joining our pre-close call. And, as I've mentioned earlier, with the end of this call, we start into our quiet period, and already very much looking forward to talking to you again on the sixth of November, the day of the release of our Q3 numbers. So all the best from the entire IR team here from Düsseldorf, Germany. Stay healthy and have a good time. Bye-bye.
This concludes today's conference call. Thank you. You may now all disconnect. Have a nice day.