Earnings Call: Q4 2020

Mar 4, 2021

Yes. Good afternoon, ladies and gentlemen, and thank you for joining us today for our full year and fourth quarter twenty twenty earnings conference. With me on the call are Stefan Klebert, our CEO and Markus Ketter, our CFO. Stefan will begin today's call with the highlights of fiscal twenty twenty and give an update on our financial targets 2022. Markus will then cover the business and financial review before Stefan takes over again for the outlook 2021. Afterwards, we open up the Q and A session in this call. As always, I would like to start by drawing your attention to the cautionary language that is included statement as in the material that we have distributed today. And with that, I will hand it over to you, Stefan. Thank you very much, Oliver, and good afternoon, everybody. It's my pleasure to welcome you to our conference today. I do and your families are still doing well in this extraordinary time. We began 2020 convinced that our primary focus would be pushing ahead with our efficiency measures aimed at making GEA even stronger. Who could have predicted that we could be confronted by an entirely different set of challenges? The unexpected and overwhelming theme of 2020 was, of course, the COVID-nineteen pandemic. We were not immune to its impact, which affected all areas of life and the economy as a whole. Nevertheless, we turned gear around. As a company, we reacted quickly to the situation. Already in January, we set up a global task force and rapidly took appropriate measures to ensure the safety of our employees and the continuation of operations via local teams organized at each site. We stated at our Capital Market Day in 2019 that our business model is robust and resilient and that we are operating in attractive end markets. And this proved to be very true in 2020. We implemented our new divisional structure. The shift went very smooth with almost no frictions. And it became very quickly visible that it was welcomed by our employees to assume responsibility again. We pushed for efficiency measures like our headcount reduction program and we divested non core and underperforming businesses like Royal de Boer, Sharpie and very recently GearBock in order to focus on our core activities. I'm also very pleased when looking at our margin development. EBITDA margin is up by almost 1.7 percentage points to 11.5%, already now at the lower end of our guided range for 2022. And we achieved a net working capital to sales ratio of 7.9%. To put this into perspective, a level below 10% was not seen for at least seven years and we have set a new record low as well. Putting this all together, we are well on track to achieve our financial targets for 2022, but more about that later. Let me summarize what we promised at the beginning of 2020 and what we have finally achieved. We issued our guidance for 2020 right at the time when the equity markets were at peak stress level in March 2020. At that time, we were one of the few companies who issued a guidance at all and we were often asked how reliable our guidance is or will be. Let's have a look at the facts. We expected organic sales to decline between zero percent zero the decline by 2.6%, the midpoint of that range. For EBITDA before restructuring measures, we initially guided a range of between EUR $430,000,000 and EUR $480,000,000. We upgraded the guidance twice, finally to more than EUR 500,000,000. At the end, we reached EUR $532,000,000, far better than we initially anticipated. Excluding for currency fluctuations, the figure is even higher coming in at €542,000,000 Lastly, return on capital employed. Initially, we guided for a range of 9% to 11% and we closed the year with a very strong ROCE of 17.1%. On the back of this strong set of results, we are proposing a dividend of €0.85 per share. Coming to ESG, a very important topic for GEA and a topic that is really very close to my heart. We did not allow the pandemic to distract us from our efforts in conveying climate change and becoming more sustainable. At GEA, our products are already helping mitigate key global challenges, such safeguarding global food supplies and conserving resources. As an international industrial solution leader, we take our global responsibility very seriously even in these unprecedented times and remain committed to our claim engineering for a better world. Our climate protection efforts were recognized once again with an A- rating in 2020 in the prestigious ZDP Sustainability Ranking. Moreover, GEA's effort in reducing its own water usage and its many customer solutions were also assessed by CPD for the first time in 2020 and were immediately awarded an N rating. We are also delighted by the fact that we listed right from the beginning in the new DUC50 ESG Index. As a strong signal how important ESG topics are for GEA, we have published a standalone sustainability report for the first time today. Let me now give you an update on where we stand with regards to our journey to 2022. On Slide eight, the EBITDA margin turnaround becomes very visible. The blue bars on the right represents the EBITDA margin before restructuring of the fiscal years 2019 and 2020. In the bars before 2019, the lower number represents the EBITDA margin before restructuring, however, not accounting for the IFRS 16 effect, which is only visible from 2019 onwards. To provide you a longer history as well as a better comparability, we added the IFRS 16 effect of 2019, which was EUR67 million to the according EBITDA before restructuring in the years before 2019. Thereby, we calculated the pro form a margin, which you can see at the upper end of the bars. So what does the graph show? The margin read the through in 2019, read the through in 2019 at 9.8%. In 2020, we shifted to the new organizational setup and implemented measures to sustainability reduce costs. The result is that the margin increased in 2020 by 1.7 percentage points and we are now back on a margin level, which exceeds 2018. And as you know, our target is to go even higher, driven by the measures which we have presented at our Capital Market Day in 2019. With this chart, we give you an update on the measures which we presented at the Capital Market Day in September 2019 and where we currently stand. The green loading bar shows you how far the measures are already implemented. Below you see the approximate amount of savings of the entire program as well as how much was already achieved by the 2020. With respect to the operating efficiency, that's mainly the Headcount 800 program, all measures are already implemented and we are currently harvesting our remaining savings. That means you can expect a further contribution of about €10,000,000 in the current fiscal year. The footprint optimization has started and is on track. We are currently close to breaking ground for our new plant in Poland. Reallocation of production will start early next year. However, we have already seen some savings due to the transfer of production hours from Europe to China. At procurement, we are already reaping the benefits. Around half of the overall expected savings were already achieved in 2020, and we expect the remaining savings to be realized almost evenly distributed in 2021 and 2022. Coming to sales efficiency increase, with regards to this building block, we have already implemented many measures like appropriate incentive schemes and the line steering of sales and service force, but did not see any positive P and L impact so far. The reason is that we need stronger top line momentum to see these measures really kicking in and this was not the case because of COVID-nineteen. However, the new incentive system already led to better contract negotiations, helping us on the net working capital side. Finally, ERP. This building block is of utmost importance for GEA, even if it is eating into our margin until it's finished. The reason is that the harmonization of our IT environment is a prerequisite for more efficiency processes. This all being said, and given that we have reached already the lower end of the range at 11.5% now, we upgraded our guidance for 2022. All the benefits, which we have achieved so far are sustainable and we do not have to share them with other parties. And this also counts for the savings to come. Therefore, leave the upper end for the time being unchanged, but increase the lower end by one percentage point to a new range of 12.5 to 13.5%. And as you can see, we are striving for another margin improvement in 'twenty one. With that, I hand over to Markus, who will walk you through the development of the full year as well as the fourth quarter twenty twenty. And I will take over later for the outlook section again. So thank you. Thank you, Stefan. Also a warm welcome. Let me wrap up fiscal year for the group on this slide. Starting with order intake, the decline by 4.6% was less pronounced than the industry average in the COVID-nineteen pandemic. It was predominantly driven by orders exceeding €5,000,000 in single ticket size. Furthermore, the longer decision making processes at food and beverage customers result in a lower order intake in these industries. We still experience some hesitancy about our customers to place larger orders. But when looking at the development since the pandemic started, momentum has clearly improved. The decline in sales comes predominantly from our project sales as our engineers are often restricted in getting access to customer sites. Our product sales were much less affected, and our service sales even grew adjusted for foreign currency effects. Stephane already mentioned our strongly improved EBITDA performance despite the top line headwind, and I'm very happy that the reasons for this EBITA development are sustainable. We improved the gross profit margin by better executing orders, especially in the Liquid and Powder Technologies division as well as better pricing. At the same time, we improved our overhead expenses with our cost savings initiatives. And as you know, we are not yet finished. The better profitability and a very strong reduction of net working capital resulted in a higher return on capital employed. And this brings me to the next performance indicator, net liquidity. The reduction of net working capital, which we are fully convinced that it is sustainable, was for the increase in net liquidity by €374,000,000 to $4.00 €2,000,000 and strongly contributed to a free cash flow of six twenty six million euros To sum it up, 2020 was a challenging year due to the pandemic, but nonetheless, we were already able to increase our profitability to the lower end of our EBITDA margin range expected for the year 2022. Let's move on to chart EBITDA bridge and the individual profit drivers. Our EBITDA was strongly above prior year's level despite a decline in top line. The decrease in sales is due to a lower volume, which should not be a surprise. Also, the fact that this development came from new machines, predominantly from the project business, should also be no surprise. The contribution from margin, however, was very strong. Better execution in combination with a better margin profile in our new management team, resulted in the positive development, which you see on this slide. The strong improvement in SG and A resulted from factors you know from the Q2 and Q3 reporting. COVID-nineteen related savings in the form of lower travel and marketing expenses as well as cost savings from our earlier implemented savings initiatives. The decline in other expenses is predominantly driven by the bad debt provisions of, in total, euros 16,000,000 for IFRS 16. This all summed up, brings us to an EBITDA before restructuring measures of €532,000,000 or €542,000,000 adjusted for negative translational FX effects. Switching now from the full year to the quarterly view on Chart 14. Order intake in Q4 was guided down on a year over year basis, but up on a sequential view. Thus, we are back to a normal seasonality. The year over year decline by 7.9% on a reported basis was much stronger than the organic decline by 4%. As you know, the year 2019 was very strong, especially due to large orders. However, the momentum in orders has improved from the prior quarters across all customer industries and also including beverages. Pharma did not improve sequentially. As you know from our Q3 twenty twenty reporting, the respective quarter benefited from one large pharma order related to the vaccine production for COVID nineteen. Sales were down by 8.2% year over year. Organically, the decline was just 4.1%. Still, the execution of some projects is impacted by the restrictions related to COVID nineteen. Therefore, the weakness arises mostly from the project business. Service sales were on an organic basis slightly up by 0.3%. Now Service sales account for 34.1% of total sales, up from 32.7% last year. EBITDA before restructuring declined by €8,000,000 but the margin expanded by 0.3 percentage points to 11.5%. Let me now turn to the division, starting with Separation and Flow Technologies. Order intake declined just slightly year over year due to FX movements. On an organic basis, order intake even increased by 4%. Dairy Processing and Pharma were stronger and Food, coming from a very high level from last year's Q4, was a bit weaker. Sales were down by 9.8% year over year and on an organic basis, down by just 5.8%. This decline came almost exclusively from new machine sales as service sales were almost on prior year's level. Consequently, the service sales ratio increased to 44.2% from 40.4%. EBITDA declined to €64,000,000 from €69,000,000 as lower overhead costs were not able to fully compensate for the volume driven decline in gross profit. However, gross profit margin continued to improve. Now let's move to Liquid and Powder Technologies. Order intake declined year over year by 18.1% on a reported and by 15.4% on an organic basis. This decline is almost entirely caused by lower order intake of large orders defined as exceeding €15,000,000 in single ticket size. Last year, the respective figure was €154,000,000 And this year, we had an order intake in this category of just 74,000,000 less than half. However, we clearly see an improvement in order intake momentum compared to the prior quarters. Looking ahead, we do see some slight improvement in customer sentiment as many countries are emerging from COVID-nineteen lockdowns. For example, in dairy, we see that the pipeline is getting better. We are in discussions with customers about larger projects and solutions are thought to increase our customers' exposure to retail like consumption. In the food channel in in food, the channel for plant based solutions is very lively. Also, instant coffee looks pretty good. Beverages is still softer compared to last year. The pipeline for larger projects is currently not that strong, but the pipeline for smaller projects is improving. All in all, the sentiment for order intake is getting better. Sales declined by 9.1% year over year on a reported basis or by 5.4 on an organic basis. Despite the backlog at the beginning of the quarter being above the prior year's level, travel restrictions as well as restrictions to get access to the site of our customers were challenging to generate higher sales figure. Organic service sales were down by seven percent year over year. The service sales share slightly declined to 23.4% from 23.8% in Q4 twenty nineteen. EBITDA before restructuring measures increased to €44,000,000 from €40,000,000 year over year. The respective margin increased to 9.9 from 8.2%. The improvement was caused by higher gross profit mainly due to better order execution as well as better margin quality in our order backlog. As a result, also gross profit margin improved. Let me now talk about Food and Healthcare Technologies. Order intake declined by 4.3% year over year or 2.8% organically. While Pharma business is slightly up versus prior year, Food was down driven by some project delays. We do see some customer industries activity picking up, most notably pharma. Sales were down by 10.1 year over year on a reported basis. Organic sales were down by 8.6%. The decline is due to Q4 twenty nineteen being a strong comparison. And as you know already from our Q3 twenty twenty reporting, COVID-nineteen affected the execution of some projects. Reported sales service sales, however, increased by 1.4% year over year or by 3.4% organically. The service sales share increased further to 28.2% from 25% last year. EBITDA increased year over year to €21,000,000 compared to nineteen million euros prior year. The according margin improved to now 9.1% from 7.5%. Gross margin improved due to better execution. Overhead costs were down year over year. Moving to Chart 18 to Farm Technologies. As in the prior quarter, it is the only division with an increase in order intake. On a reported basis, order intake improved year over year by 7.6% and organically by a whopping 16.5%. We experienced good order momentum from North America, Germany and Russia. The overall positive trend for automated milking equipment has continued and was accompanied by high manual order intake in North America. Sales declined year over year by 4.4%, but on an organic basis, sales increased by 2.6%. Some headwind came, especially in Q4 twenty twenty, from the discontinuation of a product line in barn equipment, affecting especially our sales in North America. Service sales were down year over year by 3.3%, but this was only due to FX effects. Organically, Service sales were up by 4.5%. The Service sales share increased to 43.2% from 42.7%. EBITDA declined to 20 from €22,000,000 year over year as the decline in gross profit could not be fully compensated by lower overhead costs. Finally, we are now turning to Refrigeration Technologies. The decline in order intake by 21.3 year over year on a reported and by still 17.7% on an organic basis is mostly due to postponements of orders in the project business. The good development in Q3 twenty twenty was due to some pent up demand. However, due to postponements, the pipeline looks promising, but the visibility is still limited due to COVID-nineteen. On a reported basis, sales declined year over year by 9.8% and on an organic basis by 5.2%. Besides the challenges resulting from COVID-nineteen in form of restrictions for travel and access to customer sites, also significantly lower starting backlog compared to last year was a drag to sales. Service sales declined organically by 3.7% year over year, which is predominantly driven by weaker oil and gas business. The Service sales share, however, increased to 36.6%, up from 35.7% in last year's quarter. EBITDA declined to €13,000,000 from €18,000,000 a year ago. As gross profit remained stable, gross profit margin increased supported by favorable mix effects. However, overhead costs increased due to higher FX effects as well as the impact from the bad debt provisions and negatively impacted EBITA. Let's now continue with net working capital on Slide 20, able to reduce our net working capital to a record low. On a year over year view, our net working capital position improved outstandingly by €315,000,000 or 6.1 percentage points compared to sales. Just fifteen months ago, at the end of Q3 twenty nineteen, to be precise, we were at the all time high of €941,000,000 or 19.2% of sales. Now we stand at €367,000,000 or 7.9% only, which is even considerably below the record low of 9.4% as per 2014. This is a great achievement, and I'm proud that we have reached such improvement in a short period of time. We are convinced that this improvement is sustainable. Therefore, we update our medium term guidance for the net working capital to sales ratio to 8% to 10%. Coming now to another important topic, cash generation. Despite all the operational challenges related to COVID-nineteen, we generated an operating cash flow of €328,000,000 in Q4 alone and €780,000,000 in the fiscal year. This is a great achievement, and the only reason why it is below last year's quarter level is that in 2020, we were able to structurally reduce our net working capital already in the quarters one to three. This is reflected in an operating cash flow, as I said, of €718,000,000 for the whole year. Cash outflow related to CapEx is with €43,000,000 €16,000,000 less negative than last year due to lower investments into our global SAP project, but that was only for licensees. And the net financial cash bridge is one item which is unusual in timing, the dividend. Normally, it is paid in a lump sum in Q2, but this year, we paid the first half in Q2 and the second half after our rescheduled AGM in November. To sum it up, as a result of our strong net cash flow, our net cash position at the end of Q4 twenty twenty improved by €374,000,000 to $4.00 €2,000,000 This strengthens our financial position further, which I will discuss on my next slide. Let me now talk about our financial headroom, a key topic in the current environment. On the left, you see our available cash credit lines as well as their respective utilization and maturity structure. Of the €381,000,000 credit facilities expiring this year, euros 300,000,000 have solely up due to the uncertainty arising from the global pandemic. These €300,000,000 consists of €100,000,000 credit line with European Investment Bank and a €200,000,000 syndicated credit line, the latter one including option of one year. The other €81,000,000 constitute evergreen credit lines. Potential prolongations of aforementioned cash credit facilities depend on actual capital requirements and will be decided in due course. Regarding the syndicated credit line of €650,000,000 expiring in 2022, we will initiate extension measures to secure the financial headroom of GEA shortly. We expect that our current investment grade rating will enable us to prolong credit facilities at favorable conditions. Continuing now on the right side of the slide. The only KPI which slightly weakened compared to last year's Q4 is the equity position as our dividend exceeds our reported profit for the period due to restructuring expenses. All other KPIs have improved partly significantly compared to last year's Q4. In particular, the positive development of the net position driven by net liquidity improvement of €374,000,000 in Q4 alone should be emphasized here. I can only repeat what I said in the past calls. GEA is very solidly funded on a diversified financing structure. Finally, I want to explain a more technical controlling topic, which we already addressed at the Capital Markets Day in September 2019. You may remember that we have some entities which include businesses related to two or more divisions. These so called Zebra entities are now, as of 01/01/2021, and therefore, earlier than originally expected, split up into several profit centers, which are allocated by their business to their respective division, as you can see here on the slide. This leads to a high transparency at division level. On group level, there's no impact at all. The final slide in the appendix of our presentation with the respective impact on sales and EBITDA on division level. However, this makes the KPIs per division a bit harder to compare with prior year's numbers. Therefore, we will explain these differences in each quarterly call. With that, I hand it back to Stefan. Thank you, Markus. Let me now come to our outlook for the fiscal year 2021 and some other topics. Let me start and share with you the latest value added output forecast for our customer industries and industrial production based on the data from Oxford Economics and IFZN. In 2020, some of our customer industries were impacted by COVID-nineteen, namely beverages and chemicals, and to some extent also food, whereas the latter just grew a bit slower and did not see a decline in output growth. Pharma was not affected by the pandemic and also both dairy categories held up well. Looking forward into 2021, estimates have recovered from their short but hefty dip after the breakout of the pandemic in early twenty twenty. Oxford Economics now expects a recovery of value added output growth in 2021. For most of our customer industries, this translates into growth rates in the mid single digits. Only at Dairy Farming and Dairy Processing value added output is expected to grow slower as these customer industries did not deteriorate in 2020 in the opposite, they even grew. This development shows how important both dairy categories are for our daily nutrition. I do believe that this picture perfectly represents the attractiveness of our customer industries. Even during the pandemic, they hold up relatively well. According to the data of Oxford Economics and IFCN, the impact of their growth patterns is very limited and followed by an immediate recovery. So how does this translate into our guidance for the fiscal year twenty twenty one? This is what I will discuss with you on the next slide. Following the solid development in fiscal year twenty twenty, we expect demand in our sales markets to improve slightly as a result of a global economic recovery, while global megatrends remain supportive. Specifically, we aim for a slight organic growth in 2021, translating into a quantitative range of 0% to 5% growth. For EBITDA before restructuring measures, we guide for a range of €530,000,000 to €580,000,000 and for return on capital employed, a range of 16% to 20%. The forecast presented does not reflect a renewed sharp rise in infections or new virus mutations, which could lead to another lockdown with an associated negative impact on global economic growth. Please bear in mind that the guidance for EBITDA and for ROCE is based on constant exchange rates. Let me now come to our key priorities for 2021. First is our continued focus on operational efficiencies. Even though there is no new cost cutting program, there is a clear message from the top to the divisions, regions and departments to look for cost savings opportunities. We are challenging continuously our managers on that topic. Priority two is global SAP. As already explained at the beginning, a harmonized IT landscape, a single source of truth is a prerequisite for more efficient processes and analysis. Overall, the project will last until 2025, but already this year, we will start with Template one rollout. Third is our footprint optimization. We were breaking ground in Koshalin very soon this year in order to extend our production in Poland. This is part of our strategy to further strengthen GEA's global production network in order to increase productivity and reduce the cost base. Last but not least is ESG. Even though we are on the right path to reduce CO2 emissions and water consumption as recognized by the CDP and as the inclusion of the the DAC50 ESG shows, we need to do more. Therefore, it is a key priority for us review our ESG targets along an ambitious sustainability framework. Now a few words on our roadmap for 2021. Next is our Annual General Meeting on April 30 and on May 11, we will present our Q1 twenty twenty one numbers. On September 2829, we will host our Capital Market Day and I hope that we will be able to meet all of them at a nice location. I just mentioned the Capital Market Day in September. We are often getting the feedback from investors and analysts that we are on good track to deliver on our promises for 2022. But at the same time, they are telling us that 2022 is just around the corner and that they are interested to learn more what our plans are beyond 2022. We call it Millicom 2020, and we will present and explain it to you in detail on our Capital Market Day in September. So stay tuned. With that, I hand it back to Oliver for the Q and A session. Yes. Thank you very much, Stefan and Markus. And the operator, I return the call back to you and ask you to open the line for the Q and A session. Thank you. Ladies and gentlemen, we will now begin the Q and A session. Our first question comes from the line of Klas Bergelind from Citigroup. Please go ahead. Your line is open. Yes. Hi, Stefan and Markus. It's the class from Citi. So a couple from me, and I will take them one at a time. The the first one is on the moving parts in the bridge for 2021. It feels like we will have around €20,000,000 of incremental savings, some €10,000,000 from procurement and then perhaps another €10,000,000 from the €800 program, the tail end of that. And then it's obviously up to us to reverse the temporary savings, which will be tricky. But on general cost inflation, am I right to assume that you won't see much wage inflation this year and that you can handle raw materials quite well? So the question is on incremental savings 2021 on people leaving and then procurement and then underlying cost inflation. Thank you. This is Markus. So we see that overall, there will be some travel expense, of course, coming back, probably not in the first quarter, perhaps not even really in the second quarter, but in the second half of the year. So we don't know how much will be coming back. There will be something coming back at least. But on the other hand, we have additional savings from our Headcount 800 program, and we will also have more savings from our purchasing program. What we have seen so far, of course, is that steel prices were up, but we were able actually to have a mid single digit savings in our purchasing of steel so far. But let's see where the steel prices will be going. We don't expect actually right now that's going to be too bad for us there. We will we're also expecting that there will be an increase in salaries this year, slightly above 2%, I would say, but that's going to be factored in our case from April 1 from January 1. So all in all, it's sort of big part also for us here. But we think that with the full year effect, we're going to see a headcount in Handel program. With our purchasing project, we can keep our cost increases in line. And of course, additionally, we have better execution of our new machine business and will increase our service profitability further. So Markus, thank you for that. I just want to clarify, so €10,000,000 from procurement maybe and maybe €10,000,000 from the 800 program, yes, so we get the gross savings right and then we can reverse on our own, the other stuff. Yes, exactly, yes. So I would say at least €10,000,000 in both cases. Okay. Perfect. Then my second one is on Slide nine and the sales efficiency improvement that is yet to come through. And I guess that this is linked to the split of Zebra, increased decentralization, accountability and so forth. But can we talk about the progress, the concrete actions and if we should expect anything from the 2014, 2021 or if that is more for 2022 when we will likely have even stronger organic growth? Glass. Stefan speaking. I think the majority of this program, which we are working right now on, might kick in, in 2022. So it is rather that we are looking at the moment really in detail at our sales force structure. So we are really going every country and every business, do we have the right setup? How are the people steered? What is the minimum turnover we expect from one sales rep? And the second step is now to look at the back office, how you know that we have a very decentralized structure that we expect that we can cluster teams here together and using synergies here. So this is what we are working on. It's very clear that our sales costs, are actually still having. They are too high. We think we can do it with lower cost. We can generate here some savings and at the same time, increase efficiency in sales and put more power to sales organization. And this is what we are working on. But then the full effect might come then in 2022. Okay. No, like I thought, that's good. My very last one is on revenues. And we have the organic components, zero to five, but also if you could get a feel for the divestment impact and currency. Are we talking 2.5 negative from divestments and perhaps 1.5% to 2% from FX? And then I want to squeeze in a final one on divisional guide. I mean last time you had a slide where you guided on the divisional development, how each division should likely fall through the year, obviously tricky to predict exactly. But when you look at in a growth environment and your guidance, it seems like SFT and pharm tech should drive this versus flattish growth elsewhere, or are we expecting the project delays to ease, you know, on the project side, and that should then be the main main driver just to understand the composition there? So we released a guidance for all the divisions in our annual report, which is also public from today on. So you can double check it here as well. So we see rising business in LPT, in FHT and in PharmTechnology, while we see slightly declining in SFT and in RT. But if you I'm talking more about the roughly the magnitude there, Stefan. I I know that I saw that in terms of, like, the the the relative momentum. But maybe you don't wanna stretch to that. What do you I I don't understand your question. What do you really mean by that? No, no. The how much growth in each, but maybe Okay. We guide a slight rise slightly rising, which is always in our terminology between zero and plus five. But further details, you can find on our annual report, Page four twenty. Claus. Coming back to your question before about the M and A effects, just quick numbers here. So when you look at Japi and Royal du Boer together in 2019, they had €45,000,000 in sales, and there was a low single digit loss there like 1,000,000. And GEA BORK, which was sold, had sales in 2019 of EUR 90 and a positive EBITDA in 2019 of EUR 9,000,000. Yes? Yes. Thank you. Welcome. Thank you. And our next question comes from the line of Arsalan Obaidulla from Deutsche Bank. Please go ahead. Good afternoon. Thanks a lot. Two questions from my side. One is looking out to '22, obviously, you've sort of upped the bottom range of your margin guidance. Just curious about the top end of the range because having a quick flick through, correct me if I'm wrong, the individual divisions, you seem to sort of suggest a more positive, margin target going, by division. So I'm just wondering, why that necessarily you haven't thought about yet translating that to maybe moving the top end up for the group as a whole. Well, we as we said also in prior quality calls, I mean, we give our targets where we think we should be ambitious and we should be reachable. At this point in time, we said we feel quite comfortable actually moving to the lower end of our guidance range in 'twenty two. We don't think that still the pandemic going on, this we do not have the, let's say, the visibility yet to really be able to move also the upper end of the guidance and guidance range. That might be actually something for later this year. But at this point in time, we are just moving the lower end. Great. And my second question is on sort of the share of service versus equipment. So looking across the divisions for the quarter, was, I think, other than liquid and powder, which the share went down, I think it all went up. And so I'm just wondering how do you see the sort of profiling going forward given as, obviously, equipment sales will pick up next year. Do you sort of see that potentially sort of flattening out or the direction of travel in terms of the share of service across the divisions generally? Yes. Yes. I mean, you know that in the new organization, we anchored in each division our Chief Service Officer. That means that we are really having a clear focus on Service business because we know and as we all know, this is an attractive business because it's very stable and it's also generating good margins. And of course, we want to increase our service business. However, you know that the absolute volume of service is always much lower than the absolute volume of a new installment. And therefore, think that we might see a chance to slightly increase also the percentage of service. But if we can keep growing in both directions, I think that will also help us to improve our profitability. Great. Thank you very much. And your next question comes from the line of Max Yates from Credit Suisse. Please go ahead. Your line is open. Thank you. Just my first question was around free cash flow for next year, and you've obviously given us some of the moving parts. How do you think about exceptional charges for 2021? And any sort of comments around where you think free cash flow could settle for that year as well would be helpful. That's my first question. Yes. We're going to we're also going to be good positive this year, of course, not as much as in 2020, simply for the reason because we certainly will not be able to reduce net working capital as much in 2021 as in 2020. But including all the charges for restructuring and so on, we expect to see 200,000,000 around €250,000,000 plus in free cash flow. And also, to add on that, a bit more CapEx than in the last year due to further investment in our global SAP project and also in the manufacturing footprint. We're going to be at the upper end or even above the 3.5% we guided. Yes, yes. Okay. And then just secondly, when you obviously, your guidance that you've given on EBITDA is ex FX. So could you give us a feel for what you think the FX impact would be on EBIT, taking into account both your translation and transaction FX headwinds, should we assume sort of similar to last year, sort of low 20s millions? Or how do you see that at current spot rates? Yes. It could be. It depends on mainly where the U. S. Dollar euro exchange rate will go. If the U. S. Dollar stays at around one point two zero to one point two two euros we might see up to like €20,000,000 negative impact on our EBIT. That is possible, but we also increased prices service prices in The U. S. So we are trying to actually countermeasure that. But of course, price increases to countermeasure our FX devaluation will never be complete completely. So Okay. And maybe just the third question. Your balance sheet is obviously sort of pretty strong today compared to a few years ago. So I just wanted to understand sort of how you think about sort of utilizing that balance sheet. Should we expect some more activity on M and A in 2021? Or kind of should we think that actually maybe some of this money starts coming back to shareholders? I just want to understand kind of current perspectives on M and A. Yes. Stephane speaking. I mean, I already mentioned that we after the turnaround is made, we, generally speaking, would feel strong enough to make acquisitions if we would find the right targets. But we definitely don't feel under pressure to do so. That's also very important to mention. And we are looking out. We are looking around what kind of targets would be available. We want to keep the strength of the balance sheet to be prepared once the right target is available. But we do not feel any pressure to act immediately. But we are looking out, and we are prepared to shoot once the right deer is coming out of the forest. I mean, I know you've commented on sort of size before that you would rather sort of you're not sort of a big fan of doing lots and lots of smaller deals. But just to understand actually maybe a bit more around what areas you're looking at. Do you see any sort of specific white spots or particularly interesting areas either by division, product area or region that you would really like to add to as you sit here today? I mean, if you look at our portfolio, you see also that we have different levels of profitability within our portfolio. So we definitely like the component business. That's very clear. We definitely like businesses where we have a continuous service share and service flow. So this might be, of course, more the areas in which we are looking. Okay, very clear. Thank you very much. And our next question comes from the line of Sebastian Growe from Commerzbank. Yes, good afternoon. Thanks for taking my question. The first one would be around the demand side of things. You said in the introductory statement that the Food and Beverage momentum has clearly improved lately and that clearly 2020 was a slow decision making. Overall, can you comment on the pipeline for the group overall and how it has trended since quarter two twenty twenty? And also shed around that very topic, the pipeline development for Dairy Processing, in particular. And the same goes really for the Service business. Have you seen that there, the appetite from customers has increased and improved in the more recent past? And how would Service, generally speaking, compare with your outlook statements to the top line guidance for the group of flat to five percent up? I mean, we can say that we had a quite good start in the year 2021. So we also expect a good Q1. That is valid for order intake and for sales and also for profitability. So we have no, let's say, indications why we should do not good. So this is really starting very good. The pipeline is solid, I would say. And of course, larger projects longer time. And there might be let's say, the situation that we don't see at the moment so many, but they are also at the horizon, which we can see what we can see. And as I said, when we look to the expectation of expect a really solid Q1, which will not hit the excellent Q1 of last year, of course, but which will be on a very comparable level, I would say, compared to Q4. Okay. And when it comes to the pipeline and how it has trended, so my, say, impression from earlier calls really is that the pipeline has continuously moved up the ladder, and we've seen it as other industrial companies clear that it's taking some time until this has really unleashed the potential. And my question simply is to what extent really the pipeline is up and ideally also by what magnitude? And I think that very, very much goes back to the dairy processing part of my question. Yes. I mean, as you know, we were not so much hit by the economic downswing. So our pipeline was always quite solid. And this is also how we can see it here now. And this is not that we expect any negative impact. I mean, also see in the pipeline, as I mentioned before, a pickup of projects. This, with the larger projects, is always a question, when will they come. But I can definitely confirm that our pipeline is solid and strong. And as I said before, we started very good, and we expect a good Q1. Okay. That sounds good. And the other question was around Service. Can you comment on that one and how that compares really to the 0% to 5% sales outlook for the group? Yes. Service, we are stable as well. And we, of course, were by the corona restrictions somehow yes, in some cases, we could not fulfill all the services because there were travel restrictions. The majority of our service business are spare parts. So there also might come once the travel restrictions are gone, there might come a bit additional service business back. So this is also where we are quite optimistic. Sounds encouraging. Then I have one for Markus around working capital. And clearly, it was an impressive development over the course of the year 2020. I think going back to what happened in the past, that was very much, I think, stricter monitoring as one key lever here and then also the reflection in the KPIs of your sales staff. If we think about this eight to 10% target quota going forward, does this already cater for certain net working capital buildup eventually in wake of the guided sales growth? And how should we think about particularly higher contribution going forward, very likely from the plant engineering business, which goes back to the project activity that we talked about before? Because that has higher prepayments, and I would usually assume that this should also bode well for the working capital then. Yes. I mean, of course, bigger projects we get in at ICT or at project business at Refrigeration Technology, the lower we will be able to reduce our net working capital. So the 8% to 10% guidance does not imply that we are guiding net working capital uptick here in this year. We just need to see actually how things are evolving now, how big projects are coming in, how advanced payments are going, how our projects further here in purchasing with extending accounts payable payment terms, for example, and so on are kicking in. So reduced it now from 12% to 14%. We still have a very strong monitoring on our net working capital and do not expect that this means an uptick here in net working capital. But there might be some fluctuations between the quarters, of course, and therefore, we chose 8% to 10%. Okay, sounds good. Thank you. Please go ahead. Your line is open. Yes. Hi. Thanks for opportunity to ask questions. If you could talk about the if you look at the savings you have achieved so far and, you know, if you look at opportunities in the businesses as you continue with your, you know, overall savings program, Do you think there is upside to the numbers you have guided for 2021 and maybe 2022 as well? And, you know, what we have seen is that, you know, even for 2020, you did guide for just about, I think, 500,000,000 of EBITDA. Right? But you were able to deliver much much better EBITDA than that. So when we look at the you know, your guidance for next year, how much of you know, how much we should discount for the cautious approach you typically take on on the guidance? Should we think that, you know, higher end actually is more likely than than the lower end? Thank you. Yes. I mean, that's we understand this question. But look, on we are delivering good so far. We are good underway. And related is what we see as a really realistic number. So we have, of course, this year, other effects kicking in. The corona pandemic is not yet over. Nobody knows how the situation in two, three months will be with all the virus mutations. So there's a lot of uncertainty still in the market. I mean, what we clearly showed and what we proved that we have a very resilient business model, that we are very good in delivering our performance improvement and that we are growing year by year in terms of profitability. I think that's the most important message. Let me just maybe make one thing clear, because I said before that we expect that Q1 similar like Q4. This statement was based on order intake, on sales, just to be clear. And if you could talk about the savings program, is there more room for further savings as well beyond what you have guided? I mean we are trying every day to see what where can we find additional savings. But I know that this type of questions are always very interesting. But let's walk our talk, and this is what we promise, and this is what we will deliver. In terms of the overall going back to a more decentralized model, you know, still keeping the benefits of, let's say, a more integrated business as well, how far you think you are from reaching that optimum level of the group structure? Do you think most of it is done now? And in 2021, that's when you actually see the delivery of all the progress you have made so far on the group structure? Yes. I mean we changed the group structure completely with the 01/01/2020, and all managers took over the road twenty twenty. We managed the whole year 2020 in the new organization. So the organization is done. It might be always that we are doing some smaller improvements in changes, but we can say that the new organization is fully implemented. Okay, sounds good. Thank you. Welcome. Your next question comes from the line of Sebastian Keuen from RBC. Two questions here. First, on working capital. So working capital is down really strongly in Q4, which is great. But then this would also mean that those components went through the P and L at their low purchase costs. And now we see a massive cost inflation for steel over 100%, stainless steel 25% up since August. What headwinds do you now see for the coming year from those cost increases? What do you have in your budget? That will be my first question. Secondly, pricing was very strong, as I see, last year, so accounting for almost the entire EBITDA increase. Would you say that you still have some poorly priced projects in 2020, which would then mean you still have some incremental pricing effects for 2021? Or was 2020 already on a really tight, let's say, budget for your sales departments where they really had to focus on good margins and so on? So do you think you can still see some mix effect in 2021 on the EBITDA? That would be my second question. Yes. So far, we don't expect due to the contracts we have in place, that we still we do not expect to see any major or material headwind in the first and the second quarter of this year. We are now more looking to the second half of this year when contracts are expiring, which we have in place. There could be a more material effect actually coming in the second half, but it will depend on also what kind of countermeasures we are able to achieve in purchasing. But when you take a look at steel prices alone, that could have a material cost effect there. We don't see that this will happen, for example, with copper because we're not seeing that copper in our products. So it's more on the steel side. That would be pretty hard to quantify, actually. But for the first two quarters, we are still safe to purchasing here still. Yes. Sorry, sorry, just to on this one. Ignoring hedging and contracts on an annualized basis, you now know what the steel prices have done in the past months. Can you quantify the impacts regardless of hedging? Hedging on the spend on top, of course. We don't hedge the steel prices in that sense. We have contract with fixed prices in place there. Yes. If you had to roll those contracts today, what do you think the annual impact would be? Do you have a rough number there? No. Actually, we don't have a rough number. As I said, we are looking into it for the second half of what that actually could mean. We're usually also not buying tons of steel. Steel is actually incorporated in part of the products which we are buying there. So and that will depend actually what also our suppliers for these part of the products are doing then. So it's not that we are just buying raw steel, and we can actually make judgment on that means of what that effect would be. Understood. And on the pricing? On the pricing, I mean, let's say, we are, of course, also continuously working on the pricing. The full effect is not yet reached, I would say. There is always still some potential, which will kick in, and it's a continuous exercise. We are also have we also have a lot of initiatives in place to make sure that all our cost savings, which we generate in purchasing remain in our margins and that are not going out. So many, many teams are working on that and calculations to ensure that we are not giving away the savings. So this is well underway, I would say, but it always can be still a bit better and a bit higher. That's what we are working on. And maybe a last question also on this subject, on the pricing. It was, for many years, a problem for Geir to really improve prices. Did you change something in the remuneration of your sales team? Did you what did you tighten there? Why are they now able to push these price increases through? What has changed? Yes. I mean that's a good question. In the past, the GEA sales organization was incentivized or the majority of the sales organization incentivized by volume only. We changed that already end of last year. And meanwhile, the vast majority of our salesmen worldwide are incentivized by volume, margin and terms and conditions. Perfect. Thank you so much for your help. You're welcome. And your next question comes from the line of Lucie Carrier from Morgan Stanley. Please go ahead. Your line is open. Good afternoon, and thanks for taking my question. I have two questions, and I will go one at a time. The first one, I was hoping you could go back to the revenue guidance on Slide two, getting zero to five. Just would like to understand a little bit better the moving parts because if we are looking at the order intake, you are ending 2020 with a slight organic decline. And usually, we cannot see roughly a twelve month across the group type of conversion from order intake into the revenue that you generate the following year. So I was just trying to understand on that basis, why are you confident around the organic growth potentially even up to 5%? Is it because you expect a strong pickup of service, which is not maybe in the order intake? Or is it maybe some shorter term faster turnaround project maybe in the pharma industry on the back of the COVID vaccine production? Just to try to understand the rationale here because that doesn't seem to match the historical pattern. I mean, the average turnaround of our backlog is about six months, not twelve months. That's the first maybe very important information. If we look at business in SFT, for instance, components, so this is rather three to four months service, of course, sometimes even lower. This is what makes us very optimistic that we can achieve the target. Okay. Thank you. I didn't mean the turnaround of the backlog, but usually the order intake in one year tends to be very close to the revenue the following year. That was kind of just my observation. But okay, fair enough. And my second question was around a thematic that we hear specifically at the moment from U. S. Companies, but I was wondering if you were seeing any benefit from that. We hear a lot of companies talking about reshoring of production capacities, especially in the health care industry, but also to some extent in food and other industries. And I was just curious to know whether you were seeing already some of the strengths across your business, maybe specifically in North America? We don't see any impact on our business on this reshoring activities. Okay, thank you. And your last question comes from the line of Sebastian Growe from Commerzbank. Please go ahead. Your line is open. It has actually been answered. Sorry, I couldn't remove myself from the queue. All right. We'll go back now. Thanks. Good. Okay. So if there are no questions anymore, let me make some summary or some closing remarks. I mean what is important? What is the important takeaway? I would say, firstly, GEA has achieved the clear turnaround despite the pandemic, which is unfortunately still here. And GEA is back on the upward trend, I hope, and I think that you can clearly see that in our numbers here. Secondly, the Q1, which is, I would say, at the end with ten months, let's say ten weeks. And we expect good numbers. We expect the order intake to be a bit more precise, slightly below €1,200,000,000 and sales clearly above €1,000,000,000 and we also expect a higher margin compared to the Q1 last year. So and thirdly, we have increased our midterm targets and margins. So we expect now to be 22% in a range between twelve point five and thirteen point five. And we will give you an outlook called Mission 26 at the Capital Market Day in September this year. And we will tell you what is GEA good for in the medium to long term run until '26. So thank you very much for your interest in GEA and stay healthy and have a nice day.