Good afternoon, ladies and gentlemen. Thank you for joining us today for our full year and Q4 2020 earnings conference. With me on the call are Stefan Klebert, our CEO, and Marcus Ketter, our CFO. Stefan will begin today's call with the highlights of fiscal 2020 and give an update on our financial targets 2022. Marcus will cover the business and financial review before Stefan takes over again for the outlook 2021. Afterwards, we open up the Q&A sessions in this call. As always, I would like to start by drawing your attention to the cautionary language that is included, forward-looking statement, as in the material that we have distributed today. With that, I will hand it over to you, Stefan.
Thank you very much, Oliver. Good afternoon, everybody. It's my pleasure to welcome you to our conference day. I hope you 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-19 pandemic. We were not immune to its impact, which affected all areas of life and the economy as a whole. Nevertheless, we turned GEA 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 with our 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. 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, Japy, and very recently, GEA Bock, in order to focus on our core activities. I am 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. 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. 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. With a decline by 2.6% at the midpoint of that range. For EBITDA, before restructuring measures, we initially guided a range of between EUR 430 million and EUR 480 million. We upgraded the guidance twice, finally to more than EUR 500 million. At the end, we reached EUR 532 million, far better than we initially anticipated. Excluding for currency fluctuations, the figure is even higher, coming in at EUR 542 million. Lastly, return on capital employed. Initially, we guided for a range of 9- 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 EUR 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 combating 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 the A-minus rating in 2020 in the prestigious CDP sustainability ranking. Moreover, GEA's effort in reducing its own water usage and its many customer solutions were also assessed by CDP for the first time in 2020, and were immediately awarded an A rating. We are also delighted by the fact that we listed right from the beginning in the new DAX 50 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 regard to our journey to 2022. On slide eight, the EBITDA margin turnaround becomes very visible. The blue bars on the right represent 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 EUR 67 million, to the according EBITDA before restructuring in the years before 2019. Thereby, we calculated the pro forma margin, which you can see at the upper end of the bars. What does the graph show? The margin reached the trough in 2019 at 9.8%. In 2020, we shifted to the new organizational set-up and implemented measures to sustainably 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.
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 end of 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 EUR 10 million 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. 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 aligned steering of sales and service force, but did not see any positive P&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-19.
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. We do not have to share them with other parties. This also accounts for the savings to come. Therefore leave the upper end for the time being unchanged, increase the lower end by one percentage point to a new range of 12.5%-13.5%.
As you can see, we are striving for another margin improvement in 2021. With that, I hand over to Markus, who will walk you through the development of the full year as well as the Q4 2020, and I will take over later for the outlook section again. Thank you.
Thank you, Stefan. Also, warm welcome. Coming let me wrap up this 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-19 pandemic. It was predominantly driven by orders exceeding EUR 5 million 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. 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.
Stefan already mentioned our strongly improved EBITDA performance despite the top-line headwind. I'm very happy that the reasons for this EBITDA development are sustainable. We improved the gross profit margin by better executing orders, especially in the Liquid & Powder Technologies division, as well as better pricing. At the same time, we improved our overall expenses with our cost savings initiatives. 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. 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 EUR 374 million to EUR 402 million and strongly contributed to a free cash flow of EUR 626 million.
To sum it up, 2020 was a challenging year due to the pandemic. 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. 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 resulted in the positive development, which you see on this slide. The strong improvement in SG&A resulted from factors you know from the Q2 and Q3 reporting.
COVID-19 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 EUR 16 million. This all summed up brings us to an EBITDA before restructuring measures of EUR 532 million or EUR 542 million 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 four percent. 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 2020 reporting, the respective quarter benefited from one large pharma order related to the vaccine production for COVID-19. 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-19. 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 EUR 8 million, but the margin expanded by 0.3 percentage points to 11.5%. Let me now turn to the division, starting with Separation & Flow Technologies. Order intake declined just slightly year-over-year due to FX movements.
On an organic basis, order intake even increased by four percent. 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 EUR 64 million from EUR 69 million, 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 & Powder Technologies. Order intake declined year-over-year by 18.1% on 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 EUR 15 million in single ticket size. Last year, the respective figure was EUR 154 million. This year we had an order intake in this category of just EUR 74 million, less than half. 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-19 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 sought to increase our customers' exposure to retail-like consumption. In food, the channel for plant-based solutions is very lively. 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 2019. EBITDA before restructuring measures increased to EUR 44 million from EUR 40 million year-over-year. The respective margin increased to 9.9% from 8.2%.
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 2019 being a strong comparison and, as you know already from our Q3 2020 reporting, COVID-19 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 EUR 21 million compared to EUR 19 million 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 manure order intake in North America. Sales declined year-over-year by 4.4%, on an organic basis, sales increased by 2.6%.
Some headwind came, especially in Q4 2020, 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 EUR 20 million from EUR 22 million year over year, as the decline in gross profit could not be fully compensated by lower overhead costs. 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 2020 was due to some pent-up demand.
Due to postponements, the pipeline looks promising, but the visibility is still limited due to COVID-19. 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-19 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 EUR 13 million from EUR 18 million 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 EBITDA. Let's now continue with net working capital on slide 20. We were 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 EUR 315 million or 6.1 percentage points compared to sales. Just 15 months ago at the Q3 2019, to be precise, we were at the all-time high of EUR 941 million or 19.2% of sales. Now we stand at EUR 367 million or 7.9% only, which is even considerably below the record low of 9.4% as per end of Q4 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% - 10%. Coming now to another important topic, cash generation. Despite all the operational challenges related to COVID-19, we generated an operating cash flow of EUR 328 million in Q4 alone, and EUR 780 million 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 - three. This is reflected in an operating cash flow, as I said, of EUR 718 million for the whole year. Cash outflow related to CapEx is, with EUR 43 million, EUR 16 million less negative than last year due to lower investments into our global SAP project, but that was only for licensees.
In 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 2020 improved by EUR 374 million to EUR 402 million. 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 EUR 381 million credit facilities expiring this year, EUR 300 million have solely up due to the uncertainty arising from the global pandemic.
These EUR 300 million consist of EUR 100 million credit line with European Investment Bank and a EUR 200 million syndicated credit line. The latter one including an option of one year. The other EUR 81 million 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 EUR 650 million 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 exceed 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 EUR 374 million 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 January 1st, 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 higher 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 FY 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 IFCN. In 2020, some of our customer industries were impacted by COVID-19, 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, 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 2020. 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 a 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. How does this translate into our guidance for the fiscal year 2021? This is what I will discuss with you on the next slide. Following the solid development in fiscal year 2020, we expect demand in our sales markets to improve slightly as a result of a global economic recovery, while global mega trends remain supportive.
Specifically, we aim for a slight organic growth in 2021, translating into a quantitative range of 0%-5% growth. For EBITDA before restructuring measures, we guide for a range of EUR 530 million-EUR 580 million, and for return on capital employed, a range of 16%-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 roll out. Third is our footprint optimization. We will be breaking ground in Koszalin 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 in the DAX 50 ESG shows, we need to do more.
Therefore, it is a key priority for us to 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 30th, and on May 11th, we will present our Q1 2021 numbers. On September 28 and 29, we will host our Capital Market Day, and I hope that we will be able to meet all of you 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 and we will present and explain it to you in detail on our Capital Market Day in September. Stay tuned. With that, I hand it back to Oliver for the Q&A session.
Yeah. Thank you very much, Stefan and Markus. The operator, I return the call back to you and ask you to for the Q&A session.
Thank you. Ladies and gentlemen, we will now begin the Q&A session. As a reminder, if you wish to ask your question, please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press the hash key. 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 Klas from Citi. A couple from me, and I will take them one at a time. The first one is on the moving parts in the bridge for 2021. It seems like we will have around EUR 20 million of incremental savings, some EUR 10 million from procurement, and then perhaps another EUR 10 million from the 800 program, the tail end of that. It's obviously up to us to reverse the temporary savings, which will be tricky. 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? The question is on incremental savings 2021 on people leaving, and then procurement, and then underlying cost inflation. Thank you.
This is Markus. We see that overall there will be some travel expense, of course, coming back, probably not in the Q1 . Perhaps not even really in the Q2 , but in the second half of the year. We don't know how much will be coming back. There will be something coming back, at least. On the other hand, we have additional savings from our Headcount 800 program. 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. Let's see where the steel prices will be going. We don't expect actually right now that it's going to be too bad for us there.
We also expecting that there will be an increase in salaries this year, slightly above two percent, I would say. That's going to be factored in our case from April 1st, not from January 1st. All in all, it's something perhaps also for us here. We think that with the full year effects, we're going to see a Headcount 800 program with our purchasing project. We can keep our cost increases in line. Of course, additionally, we have better execution of our new machine business and will increase our service profitability further.
Yeah.
Therefore we are quite confident.
Marcus, thank you for that. I just want to clarify, so EUR 10 million from procurement maybe, and maybe EUR 10 million from the 800 program. We get the gross savings right, and then we can reverse on our own the other stuff.
Yeah, exactly.
All right.
I would say at least EUR 10 million in both cases.
Okay. Perfect. My second one is on slide nine and the sales efficiency improvement that is yet to come through. I guess that this is linked to the split of zebra, increased decentralization, accountability, and so forth. Can we talk about the progress, the concrete actions, and if we should expect anything from the fourth in 2021 or if that is more for 2022, when we will likely have even stronger organic growth?
Yeah. Hi, Klas. Stefan speaking. I think the maturity of this program, which we are working right now on, might kick in in 2022. It is rather that we are looking at the moment really in detail at our sales force structure. 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? The second step is now to look at the back office. You know that we have a very decentralized structure, that we expect that we can cluster teams here together and using synergies here. This is what we are working on. It's very clear that our sales costs we 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. This is what we are working on. The full effect might come then in 2022.
Okay. No, like I thought. That's good. My very last one is on revenues, we have the organic component to define it. Also if you could get a feel for the divestment impact and currency. Are we talking 2.5 negative from divestment and perhaps 1.5%-2% from FX? Then I want to squeeze in a final one on divisional guide. 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. When you look at in a growth environment and your guidance, it seems like SFT and FarmTech should drive this versus flat-ish growth elsewhere. Are we expecting the project delays to ease on the project side and that should then be the main driver? Just to understand the composition there.
We released a guidance for all the divisions in our annual report, which is also public from today on.
Yes.
You can double check it here as well. We see a rising business in LPT, in FHT, and in Farm Technology. What we see slightly declining in SFT and in RT.
But if you-
I'm talking more about roughly the magnitudes, Stefan. I know that. I saw that, but in terms of the relative momentum, but maybe you don't want to stretch to that.
I don't understand your question. What do you really mean by that?
No, 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.
Okay.
A further detail you can find on our annual report, page 120.
Okay.
Hey, Klas. Coming back to your question before about the M&A effects, just quick numbers here. When you look at Japy and Royal De Boer, together in 2019, they had EUR 45 million in sales, and there was a low single-digit loss. GEA Bock, which was sold, had sales in 2019 of EUR 990 million and a positive EBITDA in 2019 of EUR 9 billion. Yeah?
Yeah. Clear. Thank you.
Welcome.
Thank you. Our next question comes from the line of Arsalan Obaidullah from Deutsche Bank. Please go ahead.
Good afternoon. Thanks a lot. Two questions from my side. One is looking out to 2022, 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. 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.
As we said also in our prior quarterly calls, 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 in moving the lower end of our guidance range in 2022. We don't think that, still the pandemic going on, we do not have, let's say, the visibility yet to really be able to move also the upper end of the guidance range. That might be actually something for later this year. At this point in time, we are just moving the lower end.
Great, thanks. My second question is on sort of the share of service versus equipment. Looking across the divisions for the quarter, it was, I think other than Liquid & Powder, which the share went down, I think it all went up. I am 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 division generally?
Yeah. You know that in the new organization, we anchored in each division a 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. 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. Therefore, we think that we might see a chance to slightly increase also the percentage of service. If we can keep growing in both directions, I think that will also help us to improve our profitability.
Great. Thank you very much.
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. You've obviously given us some of the moving parts. How do you think about exceptional charges for 2021? 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.
Yeah, 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. Including all the charges for restructuring and so on, we expect to see around EUR 250 million plus in free cash flow. 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. Okay. Just secondly, obviously, your guidance that you've given on EBITDA is ex FX. 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 similar to last year, low EUR 20s millions? Or how do you see that at current spot rates?
Yeah. It could be. It depends on mainly where the U.S. dollar, EUR exchange rate will go. If the U.S. dollar stays at around 120 - 122, we might see up to EUR 20 million negative impacts on our EBIT. That is possible. We also increased prices, service prices, in the U.S., so we are trying to actually countermeasure that. Of course, price increases to countermeasure FX devaluation will never be completely solved.
Okay. Maybe just the third question. Your balance sheet is obviously pretty strong today compared to a few years ago. I just wanted to understand how you think about utilizing that balance sheet. Should we expect some more activity on M&A in 2021? Should we think that actually maybe some of this money starts coming back to shareholders? I just want to understand current perspectives on M&A. Thank you.
Yes. Stefan speaking. I already mentioned that 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. 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. We do not feel any pressure to act immediately. We are looking out, and we are prepared to shoot once the right deal is coming out of the forest.
I know you've commented on size before. You're not a big fan of doing lots and lots of smaller deals. 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?
If you look at our portfolio, you see also that we have different levels of profitability within our portfolio. We definitely like the component business. That's very clear. We definitely like businesses where we have a continuous service share and service flow. This might be, of course, more the areas in which we are looking.
Okay. Very clear. Thank you very much.
Our next question comes from the line of Sebastian Groh 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 Q2 2020? Also shed around that very topic, the pipeline development for dairy processing in particular. 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? How would service, generally speaking, compare with the outlook statements to the top line guidance for the group of flat to five percent up?
We can say that we had a quite good start in the year 2021. We also expect a good Q1. That is valid for order intake and for sales, and also for profitability. We have no indications why we should do not good. This is really starting very good. The pipeline is solid, I would say. Of course, larger projects take longer time, and there might be a, let's say, the situation that we don't see at the moment so many but they are also at the horizon, what we can see. 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. When it comes to the pipeline and how it has trended, my 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. My question simply is, to what extent really the pipeline is up and ideally also by what magnitude? I think that very much goes back to the dairy processing part of my question.
Yeah. As you know, we were not so much hit by the economic downswings. Our pipeline was always quite solid. This is also how we can see it here now. This is not that we expect any negative impact. We 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? I can definitely confirm that our pipeline is solid and strong. As I said before, we started very good and we expect a good Q1.
Okay. That sounds good. The other question was around service. Can you comment on that one and how that compares really to the 0%-5% sales outlook for the group?
Yeah. Service, we are stable as well. We, of course, were by the coronavirus restrictions, in some cases, we could not fulfill all the services because there were travel restrictions. The majority of our service business are spare parts. There also might come, once the travel restrictions are gone, there might come a bit of additional service business back. This is also where we are quite optimistic.
Sounds encouraging. I have one for Markus around working capital. 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 8%-10% target quota going forward, does this already cater for a certain net working capital build-up eventually in wake of the guided sales growth? 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? That has higher prepayments, and I would usually assume that this should also bode well for the working capital then.
Yes, of course. Bigger projects we get in at LPT or at project business at refrigeration technology, the lower we will be able to reduce our net working capital. The 8% - 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. To reduce it now from 12% - 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. There might be some fluctuations between the quarters, of course, and therefore we chose 8% - 10%.
Okay, sounds good. Thank you.
Thank you. As a reminder, if you wish to ask your question, please press star one on your telephone and wait for your name to be announced. Our next question comes from the line of Mahendra Singh from BofA. Please go ahead. Your line is open.
Yes. Hi. Thanks for opportunity to ask questions. If you look at the savings you have achieved so far, if you look at the opportunities in the businesses as you continue with your overall savings program, do you think there is upside to the numbers you have guided for 2021 and maybe 2022 as well? What we have seen is that even for 2020, you did guide for just about, I think, EUR 500 million of EBITDA, right? You were able to deliver much better EBITDA than that. When we look at your guidance for next year, how much we should discount for the cautious approach you typically take on the guidance? Should we think that higher end actually is more likely than the lower end? Thank you.
We understand this question. Look, we are delivering good so far. We are good underway. Guided is what we see as a really realistic number. We have, of course, also this year, other effects kicking in. The COVID pandemic is not yet over. Nobody knows how the situation in two, three months will be with all the virus mutations. There's a lot of uncertainty still in the market. 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 a Q1 similar like Q4.
This statement was based on order intake, not on sales, just to be clear.
If you could talk about the savings program, is there more room for further savings as well beyond what you have guided?
We are trying every day to see where can we find additional savings. I know that this type of question is always very interesting. We 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, but 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?
Yeah. We changed the group structure completely with the January 1st 2020, and all managers took over the role 2020. We managed the whole year 2020 in the new organization. The organization is standard, might be always that we are doing some smaller improvements, changes. 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 Kuhn from RBC. Please go ahead. Your line is open.
Hi, gentlemen. Two questions here. First on working capital. Working capital is down really strongly in Q4, which is great. This would also mean that those components have been through the P&L at their low purchase costs. Now we see a massive cost inflation for steel over 100%, stainless steel or 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 would be my first question. Secondly, pricing was very strong as I see last year, accounting for almost the entire EBITDA increase. Would you say that you still have some fully priced projects in 2020, which would then mean you still have some incremental pricing effects for 2021?
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. Do you think you can still see some mix effect in 2021 on the EBITDA? That would be my second question.
So far we don't expect due to the contracts we have in place with steel, 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. It will depend on also what kind of counter measures we are able to achieve in purchasing. 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 that copper in our products. It's more on the steel side. That would be pretty hard to quantify actually.
For the first Q2 , we are still fair to purchasing here, steel.
Yeah. Sorry. Just to follow up 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 impact regardless of hedging? Hedging comes then on top, of course.
We don't hedge the steel prices in that sense. We have contract with fixed prices in place there.
Yeah. 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 but 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. It will depend actually, what also our suppliers for these part of the products are doing then. It's not that we are just buying raw steel, and we can actually make a judgment how that means or what that effect would be.
Understood.
Mm-hmm. Okay.
On the pricing?
On the pricing, let's say we are of course also continuously working on. The full effect is not yet reached, I would say. There is always still some potential which will kick in. It's a continuous exercise. 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 are not going out. Many teams are working on that and calculations to ensure that we are not giving away the savings. This is well on the way, I would say, but it always can be still a bit better and a bit higher. That's what we are working on.
Maybe a last question also on this subject, on the pricing. It was, for many years, a problem for GEA to really improve prices. Did you change something in the remuneration of your sales team? What did you tighten there? Why are they now able to push these price increases through? What has changed?
Yes. 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. Meanwhile, the vast majority of our salesmen worldwide are incentivized by volume, margin, and terms and conditions.
Perfect. Thank you so much for that.
You're welcome.
Your next question comes from the line of Lucie Carriat from Morgan Stanley. Please go ahead. Your line is open.
Good afternoon, 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 slight organic zero to five. Just would like to understand a little bit better the moving part, because if we are looking at the order intake, you are ending 2020 with a slight organic decline. Usually we kind of see roughly a 12-month across the group type of conversion from order intake into the revenue that you generate the following year. I was just trying to understand, on that basis, why are you confident around the organic growth, potentially even up to five percent?
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.
Yeah. Shall we go, Simon?
Yeah.
I mean, the average turnaround of our backlog is about six months, not 12 months. That's first maybe very important information. If we look at business in SFT, for instance, a component. 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. Okay, fair enough. 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 healthcare industry, but also to some extent in food and other industries. I was just curious to know whether you were seeing already some of those trends across your business, maybe specifically in North America.
We don't see any impact on our business on this reshoring activities.
Okay. Thank you.
Your last question comes from the line of Sebastian Groh from Commerzbank. Please go ahead. Your line is open.
It has actually been answered. Sorry, I couldn't remove myself from the queue.
Thank you.
All right. Sebastian. Thanks. Good?
Yeah.
Okay. If there are no questions anymore, let me make some summary or some closing remarks. What is the important takeaway? I would say, firstly, GEA has achieved the GEA turnaround despite the pandemic, which is unfortunately still here. 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, almost at the end with 10 months, let's say 10 weeks. We expect good numbers. We expect the order intake, to be a bit more precise, slightly below EUR 1.2 billion. Sales are clearly above EUR 1 billion. We also expect a higher margin, compared to the Q1 last year. Thirdly, we have increased our midterm targets and margins.
We expect now to be 2022 in a range between 12.5 and 13.5, and we will give you an outlook, called Mission 26, at the Capital Market Day in September this year. We will tell you what is GEA good for in the medium to long-term run until 2026. Thank you very much for your interest in GEA, and stay healthy and have a nice day.