Earnings Call: Q1 2021

May 11, 2021

Yes. Thank you very much, operator, and good afternoon, ladies and gentlemen, and thank you for joining us today for our first quarter twenty twenty one earnings conference call. 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 the first quarter, and Markus will then cover the business and financial review before Stefan takes over again for the outlook 2021. Afterwards, we open the Q and A session. As always, I would like to start by drawing your attention to the cautionary language that is included in our safe harbor statement as in the material that we have distributed today. And with that, I will hand it over to you, Stefan. Thank you, Oliver, and good afternoon, everybody. It's my pleasure to welcome you to our conference call today. We had a strong into 2021, taking into account the high comps from last year. As you know, last year's first quarter was almost unaffected by COVID-nineteen pandemic. This is the main reason why order intake is down by 6.9% year over year. While we booked five large orders worth a total of EUR140 million in last year's first quarter, In this year, we received direct order of €34,000,000 This gap in large orders alone explain the decline in order intake. On an organic basis, however, the decline amounts to just 2.5% year over year. On a sequential view, order intake further improved and reached the highest quarterly level since Q1 twenty twenty. This results from what we have stated in previous conference calls about the quality of the order pipeline. Orders have not dropped out of the pipeline. Customers just need more time to decide. And the pipeline remains very attractive. But let me get to this topic in more detail in the outlook section of the presentation. Sales were down by 2.6% year over year. The decline is owed to negative currency movement as well as to the disposals of assets, which we have concluded earlier. On an organic basis, sales were up by 2.2% and therefore absolutely in line with our full year guidance of an organic growth rate between 05%. Coming now to EBITDA before restructuring expenses and the according margin, EBITDA increased by 15.4% to €121,000,000 and the margin expanded by 1.8 percentage points to 11.4%, marking a new record level for our first quarter. This great achievement was primarily driven by an increase in gross profit and an expansion of gross profit margin. Finally, return on capital employed increased by seven percentage points to 19.3%, which is driven by the improvement of both EBIT before restructuring expenses as well as net working capital. Let me now summarize what we have furthermore achieved during the first quarter. Both rating agencies, Moody's and Fitch, provided an update. While Moody's confirmed their BAA2 rating, the agency upgraded the outlook on GEA to stable from negative. Fitch upgraded their rating to BBB with a stable outlook. This is in my view the result of the sustainable improvement of our financial KPIs. We also got an upgrade from an ESG rating agency. We received the gold standard in the EcoVadis Sustainability Assessment in March and ranked now among the top 2% of all mechanical engineering companies rated by EcoVadis globally. Achieving gold standard gives us even more encouragement to fully commit and further expand our sustainability strategy. GEA wants and will make its contribution to the exemplary management of the environment. To this end, we established a new sustainability department in early April, headed by our Chief Sustainability Officer, Doctor. Nadine Sterlei, who directly reports to me. Moreover, the dedicated sustainability department will lead the work on developing our new climate strategy, which is well underway. By early summer, we will be able to provide you with an update about the specific new goals we will be setting for ourselves and how we intend to continue setting a good example within our industry in the future. Regarding our portfolio measures, the disposal of BOC was finally closed at the February. Does this mean that we that the entire job is done? No, there are still some small review process underway, and we will inform you as soon as a deal is signed. Finally, our Annual General Meeting, which was once again given the circumstances, a virtual one. The event took place just a couple of days ago on April 30. Our dividend proposal of €0.85 per share was approved and the dividend was paid to our shareholders. Let me now turn to a topic which became increasingly important during the last month and will most likely remain highly important at least in 2021 inflation. During the last month, several raw material prices such as steel have risen significantly. Fortunately, with our new procurement processes in place, we can now keep much closer track on the current developments regarding raw material prices. What does this mean for GEA? So in our fiscal year 2020 numbers, which you can find on Page 179 in our annual report, our material bills amounted €2,100,000,000 but not all of this is exposed to price inflation. Only 20% or about €400,000,000 are actually subject to raw material inflation. We assume that the portion might be exposed to circa 10% ordinary price pressure. This would mean a gross impact of about €40,000,000 before any countermeasures we have initiated. 50% of the €40,000,000 are already mitigated by frame contracts in place, alternative suppliers and direct negotiations. For example, most of the steel related frame agreements were already renewed in October 2020 with twelve months run time. Contracts ending during Q1 twenty twenty one that were subject to negotiation were closed in mid Q1 twenty twenty one. Though the remaining EUR20 million are largely being addressed via various levers such as cost pass throughs to our fragmented customer base. In addition, the availability of products is another critical topic. In the past, it was a given that certain products were always available. However, when looking at the car and semiconductor manufacturers, the current situation speaks a different language. At GEA, we generally do not experience any meaningful shortages at the moment. However, in some minor cases, we see that lead times are expanding. To be prepared for possible shortages, we are building some security inventories. For the time being, we therefore do not expect any meaningful negative impact on our business. Lastly, logistics. Freight rates, especially for Air France, will in 2020 due to the pandemic. In the most recent past, freight costs for sea transportation are also increasing partly significantly. Our policy is that the freight costs must be paid by the customer. In most of the cases, we were able to pass price hikes on to the customer. In order to be prepared for future developments, we are currently renegotiating the freight rates on a weekly basis and increasingly change from air to sea freight, which are also implementing group wide common freight policies. So we are harmonizing the policies further within GEA. Let me sum this slide up for you. The extreme price hikes are often only temporary in nature. Thus, the real burden is often much lower than what you pick up from the news. For the time being, we can mitigate most of the inflation, and we are already closely monitoring. With this, I would like to hand over to Markus, who will take you through the financials of the quarter. Thank you, Stefan. Also a very warm welcome from my side. Coming here to the next slide. As Stephane has already highlighted the development of order intake sales and EBITDA before restructuring expenses, I will focus on the additional KPIs of this chart. Mainly the higher profitability and a very strong year over year reduction in net working capital resulted in return on capital employed of 19.3%. This is a very good number for us. On the net liquidity, the sustainable reduction of net working capital was the main driver for the increase in net liquidity by €418,000,000 to even €428,000,000 now. The improved processes to manage net working capital have also shown positive effects in Q1 twenty twenty one as the sequential increase from Q4 was much lower than in the past. But let's get to this topic in detail further on. To sum it up, we had a strong start in 2021 with organic sales growth, further expansion of margins and improvement of capital efficiency. Coming to the next slide. Here, order intake declined organically by 2.5% year over year. However, all divisions except for Liquid and Powder and Refrigeration Technologies, grew order intake organically. Liquid and Powder and Refrigeration Technologies are lagging the recovery given the late cyclical nature of the business. Sales were up by 2.2% year over year on an organic basis. Our service sales continued its growth path with an organic improvement by 5% and accounting now for 35.2%. This is the highest level ever recorded in Q1. EBITDA before restructuring margin reached 11.4%, which is also a record level for first quarter. A slight increase in overhead costs driven by bonus related personnel expenses as well as IT related costs was compensated by our gross profit. These effects were not related to one specific division, but rather before I discuss the developments at the divisional levels, let me recall a technical controlling topic concerning our Zebra entities. In our earnings call, we stated that on 01/01/2021, we will split up those entities, which include businesses related to two or more divisions. This means that you can see a visible structural impact on order intake, sales and, to a much lesser extent, on EBITDA for the divisions. Therefore, we highlight this impact, which is not included in our organic development of order intake and sales shown for every division. On group level, there is no impact at all. Coming to separation of Flow Technologies. Order intake reached a new record level with €341,000,000 and increased by 6.9% organically year over year. Almost all our core customer industries have experienced a solid demand development. Sales development was also very favorable with an increase by 5.9% organically year over year despite a lower backlog at the beginning of the quarter compared to last year. This increase was especially driven by solid development of our service business, which grew by 8.1% organically, driven by a higher backlog at the beginning of the quarter. EBITDA increased by €2,000,000 and EBITDA margin expanded further to 22.2%. This development was driven by better gross profit in the new machine business as well as a higher share of the service business. To sum up, very good start of operational Flow Technologies into the new year. The book to bill ratio reached a level of 1.23, a level unseen since Q1 twenty eighteen, and the backlog is at an all time high. Going to Liquid and Powder Technologies. Order intake declined organically by 22.6% year over year. The decline in large order volume of €106,000,000 alone was the most significant driver for that. Therefore, those customer industries, which usually have large orders, Dairy Processing, Beverage and to a lesser extent, Chemical, experienced not surprisingly a decline. There was only one large order of €34,000,000 this quarter, which was allocated in the customer industry food, specifically in the category instant coffee. In last year's quarter, we had in total five large orders with a volume of 140,000,000 Stated that the large order pilot, especially for dairy processing, is getting better. This statement is still valid, and we see that negotiations with customers are picking up. Therefore, we are confident that we will see some further large orders coming in the course of this year. Sales increased organically slightly by 0.7% year over year. Not surprisingly, the COVID-nineteen related travel restrictions are still a drag on order execution. But we are getting increasingly used to the situation and find workarounds. Our service business was clearly the driver by organic sales development with an increase of 5.6%. The decline in the service sales ratio results from the structural impact IFRS EBITDA before restructuring expenses increased significantly to EUR 23,000,000. The margin expanded to 6.8%. This development was due to a remarkable improvement in gross profit. As in prior quarters, better order execution, in combination with better backlog quality, were strong contributors. To sum it up, Liquid and Polymer Technologies is clearly heading in the right direction. Fourth quarter's trailing EBITDA margin is now at 8.3%, already within the guided range for 2022 of eight to 9%. Order backlog, also considering large orders, is also improving sequentially, which should translate into better sales going forward. Let me now talk about Food and Healthcare Technologies. Order intake increased by 4.3% organically year over year. The increase came especially from the business unit Pharma, where we received two orders in the bracket between 5,000,000 to €50,000,000 It is worth noting that these projects were not vaccine related. We received two orders for continuous manufacturing solutions of solid dosage products from two top 10 pharmaceutical companies. Sales only slightly declined on an organic basis by 0.6% year over year despite the backlog at the beginning of the quarter being below prior year's level. Like in Liquid and Ponder Technologies, the execution of projects is, to a certain extent, still impacted by COVID-nineteen travel restrictions, although new working methods like remote factor acceptance tests have been successfully implemented. EBITDA before restructuring increased by €5,000,000 and the margin expanded from 7.8% to 9.6%, which represents a new record level. A solid increase in gross profit as well as margin driven by better execution, backlog quality and a flat overhead cost ratio drove this significant improvement. To sum it up, strong order intake in Q1 twenty twenty one, sequentially up since Q1 'twenty, in addition to a strong EBITDA margin expansion. Moving to Farm Technologies. You might remember that Farm Technologies was the best performer in terms of organic order intake growth in the last quarter. The division was able to defend this title and to even accelerate the organic growth rate to almost 30% year over year. The demand trends from China, Russia and North America continued in the first quarter. Conventional as well as automated milking equipment is both in high demand. The most recent positive developments of the milk price, especially driven by strong demand out of Asia, had a positive impact on investment decisions of dairy farmers. On the other hand, feed prices are now rising, too. So far, this had not a significant negative impact on the milk feed price ratios. Sales increased organically by 6.6% year over year, driven by the higher backlog at the beginning of the quarter compared to last year. EBITDA before restructuring increased by €2,000,000 and margin expanded to 10.3%, driven by higher gross profit and lower overhead costs. To sum it up, the order intake reached almost €200,000,000 and a new record level for a single quarter. Also, backlog is currently at a record level, indicating further sales growth going forward. Even more satisfying is the fact that the four quarters trailing margin now stands at 11.3%, almost within the range of 11.5% to 12.5%, which we have guided for 2022. Farm Technologies is very well on track. Finally, let us now turn to Refrigeration Technologies. Order intake decreased organically by 5.8% year over year but reached now the highest level since Q1 twenty twenty. Nevertheless, we still experience that customers are postponing their final investment decisions. The business of RT is late cyclical compared to the other divisions. The pipeline looks healthy and recovery might be visible within a certain delay compared to other divisions. Sales declined organically by 9.9% year over year, which is mostly due to the lower backlog at the beginning of the quarter compared to the level last year. Furthermore, the project business is also impacted by COVID-nineteen related travel restrictions. EBITDA before restructuring declined by €5,000,000 and the margin contracted to 8.2% from 10.2% last year, suffering from a lower sales level, negative currency effects and the disposal of our subsidiary, BOK. To sum it up, the late cyclical nature of the business is visible in the year over year decline of order intake. However, the pipeline looks healthy. It is furthermore worth noting that the order backlog increased sequentially, slightly despite the disposal of BOC at the February. With the next chart, we are closing the divisional chapter now and take a look at the overview of all divisions. The strongest driver for EBITDA was clearly Liquid and Powder Technologies. All divisions, except for Refrigeration Technologies, experienced an increase in EBITDA. On the right side of the chart, we have added back the translational FX effect of €5,000,000 Excluding this FX effect, as we have defined it in our full year guidance, our EBITDA would have been improved would have even improved by 21,000,000 to 126,000,000 Let's now continue with net working capital on Slide sixteen seventeen. On a year over year review, we improved our net working capital by €344,000,000 and the ratio improved by 6.4 percentage points to 8.2%. All divisions contributed to that positive trend. The strongest improvements were at Liquid and Powder, Food and Health Care and Separation and Flow Technologies. Analyzing our net working capital, the strongest improvements were achieved in trade receivables followed by inventories and net contract assets. Trade payables increased slightly. I've stated earlier that we have changed the entire processes associated with managing net working capital and that these improvements are sustainable. Q1 twenty twenty one shows now that the success of these measures as the seasonal increase of net working capital from Q4 to Q1 was just €9,000,000 or only 0.3 percentage points. It is also worth noting that we did not have the tailwind from larger down payments. Thus, this development is another proof of our efficient net working capital management. This leads us to another important topic, cash generation. Operating cash flow came to 46,000,000 which is exactly twice as high as in last year's Q1. A high EBITDA in combination with a much lower cash out for an increase in net working capital more than compensated higher cash outs for restructuring and tax. Free cash flow improved to €40,000,000 from €9,000,000 last year. CapEx was almost on price level, and the €12,000,000 in the category Others next to CapEx represents the proceeds from the disposal of assets at Refrigeration and Pharm Technologies. This all results in a net cash flow of plus €18,000,000 compared to a negative €12,000,000 last year. To sum it up, due to our solid net cash flow for first quarter, our net cash position improved from year end 'twenty by €26,000,000 to €428,000,000 This strengthens our financial position further, which I will discuss on my next slide. Let's take a look at our financial headroom. A key topic on the left, you see our available credit lines as well as their respective utilization and majority structure. Of the €381,000,000 credit facilities expiring this year, euros 300,000,000 have solely been set up due to the uncertainty arising from the pandemic. This €300,000,000 consists of €100,000,000 credit line with the European Investment Bank, which will expire at the July year. The €200,000,000 syndicated credit line will expire at the August '21. We will decide on the extension of these credit lines in due time. The other €81,000,000 constitute evergreen credit lines. Regarding the syndicated credit line of €650,000,000 expiring in August 2022, we will initiate extension measures to secure the financial headroom of GEA within the next month. We expect that our current solid 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 Q1 is the equity position. Last year's total dividend payments exceeded our net income for the period due to restructuring expenses. All other KPIs have improved partly significantly compared to last year's Q1. Especially, the positive trend of our net liquidity has continued, and the number stands now north of €400,000,000 As Stefan has mentioned earlier, we received positive news from Moody's and Fitch. Both updated their ratings. Moody's confirmed their rating but raised the outlook to stable, and Fitch recently upgraded their rating to BBB with a stable outlook. This is a result of our efforts to improve all financial KPIs of GEA. With that, turn Thank you, Markus. Let me now come to our outlook for the fiscal year 'twenty one and some other topics. Since we shared this chart with you about two months ago, the picture has barely changed. In some industries, the assumptions by Oxford Economics for the value added output development were slightly upgraded, most notably in the customer industry pharma and for industrial production in general. The global economy is in recovery mode. I believe this cannot be denied. Labor markets are improving and the shortage of supplies in some areas show that the strength of the recovery was possibly underestimated. We think that if the reopening of the economies will gain momentum, we are likely to see some recovery of large order placements during 2021. The orders never drop. It is in our view only a question of when they will be awarded. Our guidance for the fiscal year 2021 is unchanged. We are well on track to reach our targets after our strong results achieved in the first quarter. The 2.2% organic growth in the first quarter is perfectly within our guided range of 0% to 5%. And you should bear in mind that this was the quarter with the most challenging base effect. For EBITDA before restructuring expenses, we confirm our guided range of €530,000,000 to €580,000,000 and for return on capital employed, a range of 16% to 20%. Please bear in mind that the guidance for EBITDA and for ROCE is based on constant exchange rates. Finally, let me now update you on our key priorities for 2021. First, our continued focus on operational efficiencies. We will further improve our efficiency by systematically pushing ahead with the measures we have initiated. I addressed the current inflationary environment. This is likely to accelerate some of our efforts to harmonize processes and to reduce costs. Optimizing our manufacturing footprint also ranks high on our list of priorities. In addition to our new production facility being built in Koshalin, Poland, where we will lay the first cornerstone next month, we will push ahead with the buildup of additional centers of competence. Koshalin will be a role model of a new, modern and ecologic sustainable factory, which will set completely new standards within our manufacturing footprint and also for sustainability. Another milestone for this year will be the start of the roll system. Currently, we are preparing the first template and the rollout will start within next. We will inform you our Q2 reporting about the first experiences of this rollout. This brings me to the next topic, sustainability. As mentioned earlier, we will further professionalize our efforts by releasing a new climate strategy and by setting ambitious targets in the not too far future. Our commitment, both internally and externally, is clear. GEA is a company that understands and takes its social responsibility seriously. And finally, Vision twenty six. We are working on our Capital Markets Day in September to outline the medium term potential of GEA. A few words on our road map for 2021. Next is our Q2 reporting on August 13, followed by our Capital Market Day on September 2829. I hope that we will be able to meet all of you in person at a nice location. The decision whether this event will be held physical or virtual will depend on how the pandemic develops during the next weeks and months. However, from today's point of view, we hope and believe that we will be able to meet you in person. With that, I hand it back to Oliver for the Q and A. Yes. Thank you very much, Stefan and Markus. And with that, back to you, operator, and please open the lines for the Q and A. Thank you. We will now begin the question and answer session. And your first question comes from the line of Arsalan Obaidulla at Deutsche Bank. Please ask your question. Your line is now open. Hi, good afternoon, everyone, and thank you for taking my questions. So my first one, I think you touched upon the fact that freight costs would be passed on to customers. Could you give an idea of what you expect that should be in terms of quantum for the year? And also then sort of how that ties back to your sort of growth target for the year as well, please? I mean, as I said, it is in GEA that freight costs are paid by customers. So when we are selling machinery and equipment, it's usual that customers are paying for freight, whatever that means. So we don't expect any material impact to GEA here. Okay. In terms for the next question, in terms of your sort of you haven't sort of explicitly restated your 2022 margin targets. So can we assume those are sort of unchanged? In particular, I note, for example, the SFT division, you're already sort of more or less at the bottom end of that range. Do you sort of now looking at some of the other divisions, are you still sort of comfortable in sort of getting to those ranges? Do you see some of them being potentially more challenging as the outlook is? Or are you still kind of comfortable in reiterating those? I mean, as I said, we are very happy and strong Q1. We think we are good underway. But I mean, nine more months to come, let's say. And therefore, we feel very comfortable with the guidance we gave, and that's the reason why we confirmed. And your next question comes from the line of Claus Bergerlund at Citi. It's Claus from Citi. So a couple of questions, please, and I will take them one at a time. First, on the backlog, it's down 4.3% year over year. Your growth guide is 0% to five and I totally can see the positive growth here in the first quarter on revenues. This backlog is obviously measured at quarter end. So it's a bit tricky for us to compare to the FX and FX from disposal that you have on orders and revenues because they are measured through the quarter. Markus, could you please tell me what the underlying backlog did ex FX and disposals at quarter end? So the organic effect, I will start there. Okay. Yes, I can do that. So the FX effect is actually €31,000,000 a negative €31,000,000 We have delta, as you mentioned, in order backlog of minus 4.3%. Out of that is FX effect minus 1.2 percentage points. So these are the numbers, plus. Excellent. Thank you. Then my follow-up is on in for out. So obviously, orders are now improving nicely in the shorter cycle divisions, SFT and ST. And I understand that the growth in ST was a bit boosted by subsidies and also some preordering ahead of price hikes of steel in North America. But in SFT, which is big division, good for margin and mix through the year, do you see this improvement more sustainable, Stefan? And if you could help us of how much of the growth step up will come from improved execution of the overall backlog, I. E, as restrictions are easing? Thank you. Yes. Thank you, Claus. So we as you said, in SFT, we have a very good also first quarter scene with a very good order intake. And we are very optimistic that this continues. So this is, as you said, important division for us in terms of margin stabilization for the whole group. And yes, as I said, we are very optimistic if you look at the pipeline, which is normally a shorter one than compared with LTT, but it looks very promising, and it looks good and strong. Very good. My and there on the backlog conversion, a lot of backlog that is turn much quicker as restrictions are easing. Any help that we can get from that, how much a percentage growth kick that can be in the second half? Maybe you don't want to guide like that, but I'll give it a try. No. We can't tell yet how it works. And not that we don't, but it's I mean, it's difficult to judge how the accelerations are going to go. But SFT is quite well underway. We are very optimistic about it. Yes. Okay. My very final one is on pricecost, and that was great color. A lot of people in the market has been asking for it. So thank you very much for that. On services, you typically pass on increased cost inflation quite quickly and there is a nice growth step up. Was this mainly driven by price hikes? Or did we also see an underlying improvement in service demand? And if you could comment on the baked in cost inflation in your project business, you alluded to SEK 20,000,000. How long are the contracts? Can you renegotiate throughout the year if we see a further increase in inflation? Yes. Let me start with the contract for the raw materials of steel. The majority of this contract is closed until autumn, yes? So we have fixed prices until autumn. To be honest, we believe that the increase of all these prices or inflation we see in steel, wood, plastic and so on, This is not driven by demand. This is driven by, let's say, by a declining or declined supply. So when we pick up, we are very optimistic that the supply will also increase, and therefore, we will also see falling prices again. So we feel very comfortable with the frame condition contract. We can, let's say, bridge the peak time of the material. That's, of course, an assumption at the moment, clearly. But this is how we see it. And we don't as I said before, we don't expect any material impact from today's point of view by material inflation on the GEA profitability. Fantastic. And then on Services, how much of the 5% was price? Well, that's difficult to say. I think we don't have a clear detailed analysis about that. But it's a mixture, of course, yes. I mean, we increased prices in service, but we also see that demand is coming back here. And by the way, we also expect that in the next months when the pandemic fortunately will disappear again, that we will also see increasing demand for service, a lot of maintenance or repairs might have been postponed. Service technicians will be allowed again to travel and to enter customer sites. So we are also optimistic if we look to the future that this will drive demand further. Thank you. And your next question comes from the line of Max Yates at Credit Suisse. Please ask your question. Your line is now open. Hi. Good afternoon. Just I wanted to ask about the temporary or discretionary cost savings this quarter. I think those have been running at sort of low to mid teens per quarter from Q2. So I just wanted to understand how much of a contribution that was this quarter to the EBITDA. We have when you look at we have different buckets of cost savings, of course. There, for example, procurement and the major ones are procurement and headcount 800 savings. So that was €2,500,000 in Q1. And then, of course, we had COVID-nineteen related savings, mainly travel and, of course, marketing expenses. That was another €10,000,000 in the first quarter. And these are the major cost savings we see. Okay. And just when I think about sort of the remaining quarters of the year, is there any sort of feeling for how you're going to manage that discretionary spend? Any guidance on if temporary cost savings were running at €30,000,000 per quarter last year, how much of that may be coming back into the business? And the reason I ask this is because if I look at your last four quarters of EBITDA, you're at about €548,000,000 So you can get sort of well within the guidance range with no year on year EBITDA improvement versus Q2 to Q4 last year. So I'm just trying to understand whether when you balance out sort of no more bad debt provisions, the additional cost savings, temporary costs coming back, do you think you can make progress year over year on EBITDA as we move through the year for the next can think make some further progress. Of course, you look at headcount 800, then it's a full year effect. That's the only thing which is coming back. On the counter side of that, that is we will have personal expense increases, of course, wage inflation, which we didn't have last year, and that's going to usually our companies, that's starting April 1. So that's going to be a counter effect there. And then the question is how long the COVID-nineteen situation will hold will keep on going with less travel restrictions and less marketing. So I assume for the second quarter, that will be the case. But for the third quarter, it could be that travel is coming back and also marketing expenses are rising. So that's a counter effect there, too. All in all, we think that especially procurement will be very helpful in getting savings in. We expect to see at least €10,000,000 in procurement savings. And probably going forward, some more savings here in the second quarter, perhaps around that what we had in Q1 for travel and for marketing expenses. Yes. And maybe one more comment to the of course, every company has savings in the COVID situation in travel expenses and marketing costs. And of course, of these costs will come back. But if there is one really positive thing out of the COVID crisis, think is that we all learned that we do not have to do every travel effort anymore, which we were used to do in the past. So we will also clearly cut our travel budgets here significantly down. And we will make sure that we are not spending never again this amount of travel costs, which we spent in 2019 and the years before. And of course, if we might see slightly increasing travel costs in Q3, maybe in Q4, we are very optimistic that simply by growing the top line and creating additional volume, can overcompensate these swingbacks from the costs, which might Okay. Kick in here And just a very quick final one. You referenced on the disposals that you were maybe not done on the disposals. And I appreciate you probably don't want to say exactly what you're considering. But could you give us a feel of the size? Are the disposals that you're looking at and discussing similar to the ones that we've seen announced so far? Or are these potentially kind of bigger scale? Okay. We announced I think it was more than one year ago at the Capital Market Day that we our intention is to dispose 200,000,000 to €300,000,000 turnover. We did phased out about 130,000,140 million euros So you can expect that there might come 100,000,000 to 150,000,000 That's the idea. And as soon as this is closed, we will have signed, we will, of course, inform you. But this is then said, then we are done for the time being. I would say then we have a portfolio we are feeling well. And then of course, we are looking also ahead and we will see what kind of potential acquisitions might be possible in the future. But like I always say, we don't see ourselves under pressure to do acquisitions. But we are watching out, and we are looking at companies that's also a clear part of our strategy. And your next question comes from the line of Sven Weyer at UBS. Yes. Thank you for taking the questions. First one is a follow-up on the order intake level. And obviously, you had very strong base orders in Q1. I mean, Stefan, what you just said on the Service business that this has not really fully recovered yet, so there's more to come. I was just wondering how sustainable you think is this strong level of base orders. Did it include any kind of double ordering like we've seen in other industries or some kind of pent up? It didn't sound like it, but I just wanted you to confirm that. No. Sven, we don't see, let's say, this we don't expect that this is an impact or that makes it different. We expect that there is a continuous strong order intake and also that in service there is no, let's say, special effect, which was created during the crisis and which we don't see anymore. So we as I said, we are very optimistic if we look at Q2 and Q3. So to say it may be a bit more precise, we expect that Q2, we see order intake, which might be 15% to 20% above previous Q2. So I think that's a very strong number, which you can expect. And we would say that Q3 might be even better than Q2. So we are very optimistic in everything we see at the moment, and that looks very good. Yes. Thanks for the clear Q2 guidance there because that was what has been my next question because what you've said is basically there is still no big tickets obviously in Q1. So far, the pipeline is really good. So that would basically lead me to believe that Q1 should have been the lowest order intake this year actually. If your base order intake is sustainable on that level, you have a few big tickets coming, it sounds like your Q2 guidance could be still cautious then because up 15% to 20% would be basically more or less flattish sequentially, I guess. Yes, it always depends on how you make the calculation or from which side you look at. It's I mean, it's you know it especially the large projects. We have a lot of large projects in our pipeline. And you know that large project, that means €40,000,000 60,000,000 one single order intake. And it's very difficult to predict, will we see one or two or three of them in Q2, will we see only one and two others in Q3. The large projects are very, very difficult. And therefore, I'm a little bit cautious, let's say, in clearly defining in which quarter we will see the order intake. But if we look at the next month and at the pipeline, as I said, we feel very comfortable. And especially, like I said, if you compare with the previous year, 15% to 20% improvement in order intake, I think that's a good and solid number. Yes, absolutely. And maybe if I may follow-up on the dairy project pipeline. I mean, is that kind of a common denominator? What's driving the pipeline? Is it all geared into demand growth Or do you see more diversification in the interest there? Are you talking about Dairy Processing or Dairy Farming? Dairy Processing, yes, please. Dairy Processing, okay. I mean, in Dairy Processing, have as I said, we have a lot of projects going on. And we also see that base load here is picking up. I mean, food quite attractive, especially when it also comes to alternative food, which also might have something to do with this division or with this business unit. We are very optimistic also here. And as I said, the pipeline which we have for the large projects, many of these projects are directly associated with dairy processing. Understood. And maybe the final question, if I may, was just on your mentioning on the freight cost. And you said you wanted to shift from air to sea transport. I mean, given that you said earlier that the logistic costs are basically carried by the customers, I mean, that such a big deal then in the first place, the shift that you make? Or is it really impacting a lot of your procurement? Yes. I mean, this is when we are talking about shifting air freight to C load that also, let's say, impacts some internal deliveries we do or some emergency deliveries, things like that, where we feel and see that there is a cost saving potential, which we could use internally. Okay, understood. Thank you, Stefan. Thank you. And your next question comes from the line of Akash Gupta at JPMorgan. Please ask a question. Your line is now open. Yes. Hi, good afternoon, everybody. I have just only one left. You mentioned some COVID travel restrictions having some impact in Q1. I'm wondering if you can quantify that impact. And is it fair to say that, that should be a tailwind, particularly in second half of the year if travel restrictions go away by then? Yes. I mean, it's very clear that pandemic is still there. That and of course, the first quarter was a very tough one in terms of the increase. Also not only in Europe, we also had at the beginning of impact in The U. S, also India. So of course, it has an impact. And as I said before, we expect once the pandemic is gone and more and more people are vaccinated, we expect the kind of tailwind. That's what we expect for the coming months, yes. Thank you. And your next question comes from the line of Lucy Carrier at Morgan Stanley. Please ask your question. Your line is now open. Hi, good afternoon gentlemen. Thanks for taking my question. I think I had a follow-up on the service side of the business, which has rebounded really strongly. Do you have any visibility on whether that rebound is really what I would call a restart in production for a lot of customer? And generally speaking, when you think about the service that you provide to your customer, is there a differential in profitability in that type of service versus what I would call maybe the regular service kind of related to kind of production itself? And in itself, do you have visibility on level of production at your customer in terms of your future for the service pipeline? Yes. I mean, as I said before, the service is picking up. We saw a slight increase here. And we especially see also now coming back a demand in the field service. The majority of our service is always spare parts, but we also see now once the travel restrictions are gone that we can improve here our services and doing more field services that a lot of customers are also open and willing again to let our people in their production, which was or still is in many companies a corporate policy that other people, which don't belong to the company are only allowed to enter the factory in an emergency room repair. So yes, we expect that this also will improve further. Okay. Thank you. My second question was around kind of the mix you have in Pharmaceuticals because I remember that for the past couple of quarters now, you have reported good momentum, but every time you have said that there was not related to kind of vaccine production. Just out of curiosity, I was just wondering if you had kind of the product line or product offering that could serve actually the vaccine industry or whether this is something you don't have and may want to have? Or how are you positioned in this area? Because apparently, it hasn't been a it hasn't been a benefit for you so far. Yes. I mean we had a good order intake situation in Pharma, and Pharma is good underway. We have actually, let's say, two lines in our Pharma business unit. One is the solid doses, where we talk about tablets and so on, where we also had high demand, which has nothing to do with vaccinations, of course. And then we have the liquid doses, where we are not in the filling business, and that was especially or is the bottleneck in vaccination production. So the question, why can all the producers not speed up their production has normally nothing or very little to do with the production of the liquid itself. It is more a question how to bring the liquid in the bottle and pack it. And this is a business where we are not in. But we are also actively involved in some of the COVID vaccination productions with our products. And this is also what is included in Pharma. But it's not that we are, let's say, it would be wrong to say that we are building complete COVID vaccination production lines and the demand. That's not the case. But I mean, what become also very clear that Europe is very much depending in the pharmaceutical industry from lot of other countries. And therefore, we see also a lot of European companies also investing here heavily in pharmaceutical equipment. Understood. And just my last question was more of mechanical one. I just wanted to double check with you which type of impactbenefit we should expect from FX on adjusted EBITDA for 2021, please? Because the guidance is ex FX, obviously, if there was an update from last quarter. We could expect to have first quarter translation effect was €5,000,000 So we could perhaps expect a translational effect of between 15,000,000 and 20 because the U. S. Dollar, for example, exchange rate also increased during the year of 2020. And if we say it's $2,021,000,000 so the effects then will be a little bit lower in the coming quarters. But nevertheless, first quarter €5,000,000 15,000,000 plus could be the case for this year. Thank you very much. Thanks. Thank you. And your final and last question comes from the line of Sebastian Grover at Commerz Bank. Please ask your question. Your line is now open. Yes. Hi, everybody. Thanks for taking my questions. Sebastian here. The first one is around FHT. You mentioned earlier that obviously, almost all divisions are either already in the target margin corridor for 2022 or at least very close to that, so the only exception being FHT. So my question is whether you see that the segment is still fully on track to get to the 10.5%, 12% range, given that you had a pretty good order momentum since the 2020? Or are there any other levers that we should have on mind that might go beyond volume, I. E, can you talk about pricing quality at FHT? And then I would have two other questions. Okay. FHT, you know, is a kind of mixed business. We do also pharmaceutical business as a part of FHT. We see that we are also here very good on track that we are increasing our margins. And that's what we see here. And we are also very optimistic to do further improvements here. That's out of question, yes. And that is mainly volume related, so operating leverage? Or is there anything really that we should pay attention to that the, say, recent composition of the order backlog when it comes to the diverse nature of the various end markets you're serving would rather bode well for the mix going forward. Is that the right interpretation? I mean, that's a mix for many, many things. I mean, in FHD, we have potential in sales, in organic growth. And we also see good potential in improving our margins, because this is also quite inhomogeneous, let's say, within FHT, and we can also improve it here significantly. Okay. So the other question I would have is on LPT. And given that you're already close to the midpoint of that eight to 9% range, despite the fact that on my numbers, I would see the business about 15% or so below prior peak levels. You talked around the pipeline and particularly you stressed that Dairy Crossing looks pretty good. So the question that I would have here, simply, are you feeling comfortable to return to those prior highs of around, call it, euros 2,000,000,000 eventually in terms of revenue over the next one to two years in that very business? And how should we think about the mix impact from an ever higher share of Dairy Processing in particular? Roger, go forward, Nishte. Yes. I mean, when it comes to the LPT is our largest business at the moment with roughly €1,700,000,000 turnover a year. This is a sensible size, which we see here. We also see further opportunities to grow. That's very clear. And we also see further opportunities to improve our margins. But what is very clear, I always yes, I mean, it's not about boosting top line and sacrificing margin. It's very clear that we have clear margin targets and profitability beats top line. That's very clear. And we feel very, very optimistic with all the changes we made in this division. I think it's a very impressive turnaround. If you look at good structural area where we had the business area equipment and solutions and what is today LPD, which generated a lot of turnover, but zero profitability. It's a completely different issue nowadays. And as I said, priority is very clear, stabilizing the organization, improving margins, focusing on modularization of our projects, things like that. And of course, then we also are able to grow, but it's not our main strategic direction to grow, grow, grow in that division. I appreciate that. But I would assume that given the restructuring you have undertaken, started obviously in dairy. I would assume that now this very, very volume increase would need an ever more trimmed cost base. So by nature, that's sort of a positive impact. But on a higher level, can you just comment on the three big building blocks, so to speak, when it comes to pricing quality within LPT? So Dairy is about 30% plus. You have Beverage at close to 30% share. You have Chemicals at around 20%. So to just get a better sense of how beneficial really this pickup in daily might be? Yes. I mean, we don't disclose numbers on that granularity on that level. But it's very clear that and that's valid for the whole LPT division. We don't want to sacrifice margins. We clearly have very clear expectations. We also have established a lot of check boards, let's say, to make sure that we are taking in only projects which we can digest and where we see the right margins. So at the end, we have clear expectations where we want to go. These are communicated with our midterm targets. We are very well on track here with the division LPT. Yes, that's what I can say. I'll try and leave it there. Just one for Markus and really quick one on working capital. Just on the comments from changing transportation from air to sea, would that impact eventually working capital in any sort of negative way? And can you just give us sort of idea with obviously the much better backlog now how working capital might trend? Or do you really feel confident also with the lower end of the 8% to 10% range for working capital for the rest of the year? Yes. The freight expenses will not drive our net working capital there. I don't see that we have longer we have longer delivery times actually and thus actually get later paid. So this is more a question of profitability here and a question of cost. Really hard actually to keep it at the lower end, quite frankly, with the range of 8% to 10% in the first quarter. We're quite successful with that. And I can tell you that our goal is actually to keep it there. But of course, I mean, everyone knows, I mean, raw material prices are increasing. And there might be some fluctuations between the quarter, which is simply seasonality there. And that's why we said it's between 810%. But I can confirm, we're working very hard actually to keep it at the lower end of that range going forward. You. We have no further questions at the moment. Okay. So let me thank you for your participation and for your good questions. Maybe I give you a kind of summary of what you heard. First of all, I think it's important to understand and to see that GEA had a really strong start into the year 2021. And this also confirms very clearly our upward trend, which you could also see when we look the numbers. Secondly, as of today, we can mitigate most of the input cost inflation, and we are closely and actively monitoring the situation to take further actions if needed. And thirdly, and also very important, we confirm our outlook for 2021, which is significantly above, let's say, the previous year. And we will be back in September at the Capital Market Day with our Mission 26, where we will inform you all what comes beyond our midterm targets, which we defined as EBITDA margin 12.5% to 13.5 in the year 2022. So thank you. Stay healthy and all the best.