Earnings Call: Q2 2020

Aug 12, 2020

Ladies and gentlemen, thank you all for standing by and welcome to this GEA Group Second Quarter twenty twenty Conference Call. At this time, all participants will be in a listen only mode. There will be a presentation followed by a question and answer session. I must advise you all that this conference is being recorded today, Wednesday, 08/12/2020. And without any further delay, I would like to hand the conference over to the first speaker of the day, Mr. Oliver Lukenbach. Please go ahead, sir. Yes. Thank you very much, and good afternoon, ladies and gentlemen, and thank you for joining us today for our second quarter twenty twenty earnings conference call. With me on the call today are Stefan Klebert, our CEO and Markus Getter, our CFO. Stefan will begin today's call with the highlights of the second quarter twenty twenty, and Markus will then cover the business and financial review before Stefan takes over again for the outlook 2020 and our key priorities. Afterwards, we open up the call for 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 hand it over to you, Stefan. Thank you, Oliver, and good afternoon, everybody. It's my pleasure to welcome you to our conference call. I hope you and your families are still doing well in this extraordinary time. Considering this extremely challenging environment, I'm pleased to say we have also achieved a good second quarter with significant EBITDA growth despite COVID-nineteen related declines in order intake and sales. This shows that the restructuring measures we introduced last year are now bearing fruit and that our new organization has got off to a successful start, enabling us to raise part of our guidance for this fiscal year. I will come back to that later. Let me now focus on a few key financials. Order intake and sales were down nine point eight percent and six point six percent, respectively, mainly related to lower activity and demand due to COVID-nineteen. The book to bill ratio was 0.89 versus 0.92 in the second quarter twenty nineteen. Nevertheless, our EBITDA before restructuring measures increased significantly by 26.6 to €140,400,000 This strong performance was driven by four out of our five divisions and includes some crisis relevant windfall savings like lower travel costs. In addition, we have improved ROCE strongly by more than 400 basis points to 14.8 and turned our net debt position of €330,000,000 a year ago into a net cash position of €92,000,000 this quarter. I would also like to comment on COVID-nineteen, which continues to affect our business, employees and actually also the way we work. Our highest priority during the global coronavirus pandemic was and still is protecting the health and safety of our more than 18,000 employees. And as there is a large impact on societies and individuals as well, we supported also numerous local initiatives with donations. The reason why we have been able to achieve this very solid financial performance in the first half, with sales being only down 2% and EBITDA before special items up 32%, are the strong effort of our global crisis management team. The task force we put in place already at the beginning of the year and in particular our employees. Our employees have been very disciplined in complying with hygiene and social distancing requirements in the production side and offices, and many colleagues worked very engaged from home. I think we can say that GEA was really at the forefront of managing the crisis. We already had a lockdown of all our canteens with sites larger than 100 people, while football games with 50,000 people took still place here in Germany. We also benefited from our dashboard that provides the management team with all relevant KPIs to steer gear safely through this difficult time. So we know on a daily basis how many infections we have, how many are recovered. We know if and how many customer projects are delayed or have been postponed. We know about production capacities. We know about influence on supply chain. We know how many masks we have, and we do even know how many liter of hygiene liquids for disinfection we have in our company. So this gives us really a state of the art transparency. The launch of a remote service tool was very helpful to facilitate cooperation with our customers when site visits were not possible, and we managed the supply chain smoothly by introducing safety buffers and second sources to secure supply. On the financial side, we profited from the early implementation of our liquidity initiative with focus on accounts receivable, expense management and reduction of net working capital. On top, we implemented proactive savings measures, helping us to achieve the strong earnings development in the first half. This chart shows that the total uptime of our production site was not really affected by COVID-nineteen so far. In the second quarter, 14 out of our 61 production sites worldwide had to close due to COVID-nineteen regulations in their countries. In summary, the 14 sites were impacted by one hundred and fifty nine closed days. While we managed the crisis well so far, the corona pandemic is far from over. Therefore, we need to be prepared in case there is a second wave. And we are, as you can see on this slide. All these measures will help us to secure business continuity, if needed. With that, over to you, Markus, to expand on the business and financial review. Thank you, Stefan, and also a warm welcome from my side. Stefan already mentioned a very solid bottom line performance. Please let me put our Q2 twenty twenty figures into perspective. This is currently an extraordinary challenging situation. We have seen leading economies reporting drops of their gross domestic products by about 10% in the second quarter. On the back of this development, I strongly believe that a decline in orders by less than 10%, a sales decline by less than 7% and an increase in EBITDA even when adjusting for special items is a very solid development, which we are proud of. On the strong development of EBITDA before restructuring measures, I want to share some more details with you on the next slide. Overall, our EBITDA before restructuring measures improvement from €111,000,000 to €140,000,000 was driven by all but one division. However, excluding special items, all five divisions were operationally up. If we look at the main drivers, I think it is not surprising that volume was down in all divisions with the exception of separation and flow technologies. Both new machine business and service business suffered from COVID-nineteen. The good news is that margin was up in all divisions, driven by new machines business this time. The key reason for the improvement is a generally better margin quality of the backlog. However, we also need to mention that last year's Q2 was burdened by the backlog review and €30,000,000 we took as accruals for project risks. SG and A costs were lower compared to last year's second quarter due to windfall savings in the form of lower travel and marketing expenses, but also due to the absence of special items amounting to €9,000,000 last year. In comparison to last year, we're to digest an FX headwind of €7,000,000 with the majority coming from transaction. In order to enhance transparency, we show the positive effect of lower special items than last year of, in total, euros 12,000,000 and the negative FX impact of €7,000,000 separately. Therefore, we showed underlying operating improvement of €24,000,000 Let me now turn to the divisions, starting with Separation and Flow Technologies. The division reported a decline in order intake but growth in sales and EBITDA. The decline in order intake was predominantly caused by the customer industries oil and gas as well as Marine. Orders from the customer industries dairy processing as well as food were also down but less pronounced than the first two mentioned. Orders from the customer industries Pharma and Chemical were above prior year's level. Sales were up by 4% year over year. This growth was predominantly driven by the customer industry food. Service sales continued to grow but just slightly at a rate of 1.5%. As a result, the service sales share declined to 40.3% from 41.3%. The growth of EBITDA was driven by volume as well as improvements in gross margin. Overhead costs declined compared to prior year's second quarter due to a significantly lower burden from special items and cost cutting. Now let's go to Liquid and Powder Technologies. Order intake declined by 8.4% to three thirty five million euros and included just one large order with €18,000,000 The current situation is generally characterized by lackluster large order development due to COVID-nineteen related travel restrictions. Also, customers are delaying their order placements into the 2020 as they are putting an increased focus on preserving their cash. Sales declined by 5.1% year over year. Due to travel restrictions, our engineers were not able to access some customer sites to execute projects. This was mainly the case in the business units, beverage and filling as well as restrictions also had an impact on service sales at Liquid and Powder Technologies, which were down by 6.7% and account now for 22% of sales versus 22.4% last year. EBITDA before restructuring, however, increased. Gross margin significantly improved due to a better margin quality of the executed projects during the reporting period. Last year's EBITDA was burdened by the special items related to the backlog review of, in total, euros 10,000,000 to clean up our order book. Overhead costs are down, and this positive performance is resulting from the restructuring efforts, which we started during the second quarter twenty nineteen. This pays now off in the form of lower personnel expenses. Let me now talk about Food and Healthcare Technologies. When looking at the performance, one should bear in mind that we have several legal entities in this division, which are located in Northern Italy, in the region or close to the region, which was most affected by lockdowns. The restrictions, for example, on travel, had a significant impact on the ability to generate order intake as well as sales and EBITDA. Order intake declined by 13.5% year over year, mostly driven by the business units Bakery, Food Solutions as well as Slicing and Packaging. Business unit Pharma and Healthcare stood out with good growth in order intake. Also in the division, we experienced that some customers are delaying their final investment decision into the 2020 as a result of the increased level of uncertainty related to COVID-nineteen. Sales declined by 5.8% year over year. The lockdown in Italy was the most significant driver here and also temporarily impacted our supply chain, which itself resulted in a delayed execution of projects for us. As you might can sense, those business units with entities in the Northern Italian region, namely pasta and bakery businesses, were most affected. Service sales were down by 3.9% year over year and thus developed a bit better than the entire division, especially due to a stable spare parts business. The share of service sales increased slightly to 24.2%, up from 23.7 EBITDA, however, improved significantly from €12,000,000 to €22,000,000 This improvement was driven by a slight improvement of gross profit and by lower overhead costs. The impact from special items is positive by €6,000,000 Moving to Chart 14 to Farm Technologies. Order intake declined by 1.2% year over year. At the beginning of the quarter, some farmers had to dump milk due to a significant decline in demand and therefore, also declining milk prices. The situation has improved, but the uncertainty regarding the future development of farm gate milk prices is still weighing on the sentiment of farmers to place orders. On top of that, our sales teams were not able to visit customers, which adds furthermore to the negative development. Sales were down by 9.7% year over year. First, the order backlog at the beginning of the quarter was about 10% below last year's starting point. Second, execution of some projects was delayed due to COVID-nineteen. Service sales were, however, not that much affected as we have a high share of products such as spare parts and consumables, which can easily be shipped to customers. Therefore, service sales were roughly on prior year's level, but mathematically, their share on total sales increased strongly to 48.8% from 42.5%, still a clear sign of a robust service business. EBITDA before restructuring increased year over year due to better gross profit, especially from new machines. Also, overhead costs improved by €4,000,000 resulting from cost savings initiatives implemented earlier and some windfall profits in cost savings, for example, less travel. That gets me to our fifth business. Order intake declined markedly by 30% at Refrigeration Technologies, but especially driven by delayed customer decisions in the business unit projects. Also, especially in those regions, which were strongly affected by COVID-nineteen, such as Italy, recorded a deep decline. It should be also noted that the second quarter twenty nineteen was an extraordinary strong quarter in terms of order intake. Sales developed also negatively with a decline by 13.4% year over year as some of our production sites were temporarily closed and thus caused delays in the execution of projects. The situation in Italy impacted our ability to generate sales as well as the temporary lockdown related closure of a skids factory in China. This also affected service sales, which declined by 9.5% and now accounts for 35.8% of sales, still up compared to 34.3% still down compared to 33.3% in the 2019. EBITDA margin remained stable despite the strong decline of sales. The decline in sales volume could be partially offset by better margins of the executed projects. Also, slight reductions in overhead costs supported the EBITDA development. Let's now continue with net working capital on Slide 16. Almost exactly one year ago, we started our net working capital initiatives. And I think now is a good time to review the success of the new processes. The numbers speak a very clear language, in my opinion. On a year over year perspective, we improved our net working capital by €276,000,000 or almost six percentage points to 13%. This represents the best net working capital to sales ratio in Q2 since 2015. From a divisional point of view, especially liquid and powder, also but to a lesser degree, separation and flow, farm as well as refrigeration technologies contributed to that result. The significant improvement was driven by an improvement of prepayments, trade receivables and inventories. To sum it up, the new net working capital management procedures are clearly paying off. We expect to be below 14% of sales this year. Coming to Chart 17. Cash is very important, if not the most important topic in these days. Our cash generation is, in my opinion, another proof that the organizational setup is working really well. And this quarter's net working capital figure is a perfect proof for this. In Q2 twenty nineteen, the contribution from net working capital was an outflow of €72,000,000 This year, we have an inflow of €64,000,000 This is a swing of 136,000,000 and it shows how numbers improve when you make people responsible for their actions again. Let's move on to our new net financial position now. The dividend payment in this year's Q2 is significantly lower than in last year's Q2. We have postponed our AGM to November 26, but paid the maximum amount to our shareholders, which we can without an AGM. Our proposal for the remaining €0.43 per share is still valid and will be up for decision on November 26. The key takeaway from this chart is our net cash position of €92,000,000 driven by strong development of net cash flow. Chart number 18. And before I hand it over again to Stefan, let me talk about our financial headroom, a key topic in the current environment. Let me start on the upper left. We have total committed lines of more than €1,100,000,000 of which we have only utilized €422,000,000 Considering our cash of €515,000,000 we increased our net liquidity to €92,000,000 in comparison to a net debt of €330,000,000 a year ago. Even if we consider that we plan to pay another dividend of in total €77,000,000 this year, it's still an improvement of €345,000,000 Furthermore, our financial headroom amounts to €650,000,000 in credit lines. Despite our strong financial position, we decided to take precautionary measures to secure further funding by increasing our credit facilities. That means the existing credit line with the European Investment Bank was increased by €100,000,000 Furthermore, a second syndicated credit facility was agreed upon with a volume of €200,000,000 We are also preparing ourselves to be potentially able to participate in a commercial paper program of up to €500,000,000 but only if needed. And at this point in time, I do not foresee that we really need this. As I said, precautionary measures. I can only repeat what I said in the past calls. GEA is very solidly funded on a diversified financing structure. And with that, I hand it back to Stefan. Thank you, Markus. Let me now come to our outlook for the fiscal year 2020 and our key priorities. Let me start and share with you the latest value add output forecast for our customer industries and industrial production in 2020 based on the latest data from Oxford Economics. First of all, we can see on the left chart that our customer industries, with the exception of dairy farming and dairy processing, are expected to be down in the 2020. However, the declines are much lower compared to the overall industrial production with a minus of 8.6. This shows that our customer industries are much more resilient. And if you especially look at dairy farming, dairy processing, which is a big part of our business, that also looks here quite good. On the right chart, Oxford Economics forecast for the full year 2020 are shown. They expect a stable development for Dairy Farming and Dairy Processing as well, with a growth of around 0.5%, which is approximately at the same level of Pharma with an expected growth of 0.7%. So the value added output for the segment's Food, Beverage and Chemicals is expected to decline, but is still doing much better than the industrial production with a minus of 5.5%. Following the overall good first half results, especially the EBITDA before restructuring performance, we have decided to raise part of our guidance for the 2020 fiscal year, despite the fact that due COVID-nineteen, the overall situation will remain challenging in the second half of the year and difficult to predict. We will still expect sales to be slightly down versus last year's figures of €4,880,000,000 However, due to the strong first six months and our restructuring measures bearing fruit, we are now forecasting EBITDA before restructuring measures to be at a minimum at the upper end of the previous range of €430,000,000 to €480,000,000 For ROCE before restructuring measures, we now expect a number between 1214%, up from former guidance of between 911%. Before I close with our road map for this year, let me focus on our key priorities for 2020. First and foremost, we will manage the impact of COVID-nineteen internally and on our operations. On the business side, the strongest focus is, as in the first half, on order intake and sales as well as on managing costs and securing liquidity. Second, we will push to realize the savings from the new global procurement and supply chain organization. Third, we want to conclude the reduction of our workforce by, in total, 800 FTEs. Fourth, we will continue to increase our operational efficiency. Fifth, we will divest our earmarked low margin businesses to focus our efforts on the remaining operations. So we are confident that achieving these key priorities will be another step to further restore credibility of capital markets into the GEA Group. Let me finish with our road map for 2020. Our next reporting date is November 5 for the release of our Q3 numbers. And on November 26, we will hold our Annual General Meeting, which was originally planned for April. With that, I hand it back to Oliver for the Q and A. Yes. Thank you very much, Stefan. Thank you very much, Markus, for your comments. Before we begin the Q and A, I would like to remind everyone to keep your questions to two per person so that we are able to take questions from as many participants as possible in the time allotted. With that, I think we can open up the Q and A lines for the Q and A session. Operator, please take over. Our first question comes from the line of Klaus Berglund from Citi. Please go ahead. Hi, Stefan and Markus, it's Klaus from Citi. So my first question is the on the savings and embedded margin out of the backlog. So on the $32,000,000 margin impact on Slide 10, Markus, you have $16,000,000 reversing from last year's review. So Clean impact is $16,000,000 And then it could be price mix in there, as you say, that the back margin has improved. And then you have some productivity improvements in the volume number just before that. And then finally, we have a clean SG and A saving. So I get this around 30,000,040 million dollars perhaps. What if we try to break this down, it would be very helpful. How much was savings out of the 800,000,000 program in LPT, less travel, bonuses and so forth? Because getting that number will be pretty important for us when we model the margin into the second half and into next year. I will start there. Thanks. Okay, Claus. We have seen approximately in travel expense reduction in the margin only of EUR 10,000,000. We have seen another EUR 15,000,000 in the OpEx and the SG and A expenses. However, the €10,000,000 which I just said, most of that is usually chargeable to customers. So the effect of less travel in the margin is not that significant really because we, as I said, we can charge this. So the way to look at here the margin analysis is really that we have seen here an impact special items of 16,000,000, that needs to be deducted solely here on the margin improvement of new machines. So the EUR 34,000,000, which we are showing for new machines, you need to deduct the EUR 60,000,000 and derive at a net figure for the improvement in margin of new machines. And then perhaps of the €10,000,000 it's perhaps €2,000,000 around that number, plusminus perhaps only, that would perhaps not be chargeable. So it's really a lesser amount. Most of it should have been chargeable. Yes. Okay. And then on the SG and A, because I get that when I strip out on both ends, get that to the EUR 16 So million impact how sustainable is that? So well, we as I said, we have seen approximately here EUR 50,000,000 from less travel, less marketing expenses, less fare, that means. And that is really savings on the SG and A side because that is not chargeable to any customers. Additionally, asked for the Headcount 800 program, that is approximately €6,000,000 per quarter. And we have seen purchasing also around 6,000,000 yes, it's a 6,000,000 also in that. Okay. No, that's very helpful. Thank you for that. Maybe sort of my second one, and I promise only to, is a follow-up on the sustainability of the margin LPT. So in LPT, we nearly do a 10% margin and the target is 6.5% to 7% and it used to be a low double digit margin business during the dairy boom years to super cycle. And I understand that you are obviously gaining from both actions last year in LPT and also COVID related savings. Let's assume that this business would start growing again, not daily boom, but you see some growth. Is this a 12% margin business relatively quickly? Can LPT soon deliver double digit, I. E, double its margin target? Or any reason for why that wouldn't happen, obviously, beyond macro? Yes. Glass. Stefanie speaking. I think I mean, in the project business, we had to make a lot of changes, and we are still doing many changes. You know that we changed we started to change the management team. We really were much more cautious in what we take in. And it is, of course, I would say, our most complex business. That's the nature of project business. So I would not expect that in a very short time, we will end up as a number, which you say. So it will take more time. We need to stabilize the organization more if we look at the single projects. And on average, we are becoming better, but we also still see sometimes projects where we wish to be better, to say it in that way. Thank you. What a quick fix. Thank you for your question. Our next question comes from the line of Lucie Carrier from Morgan Stanley. Please go ahead. Good afternoon, and thanks for taking my question. I just maybe wanted to ask around the guidance because you seem to have done so well in the first half of the year. We are now kind of already mid August, so I'm guessing you have good visibility into the second half. But it seems that you are guiding for a second half lower than the first half from an adjusted EBITDA standpoint. So I just I guess would like to understand whether this is extra cautiousness or whether this is something you are seeing in your orders or whether this is something you are seeing in the mix? Thanks, Lucy, for this question. Stefanie speaking. I mean, we are living in a very, very uncertain time, and this is also reflected in our guidance. So despite we are very happy and also proud of what we could achieve in the first half of the year, we need to be and to remain cautious for the rest of the year, especially if you look at the numbers during the last days and week of the COVID cases all over the world and also in Europe, it is really putting a lot of challenges on all of us. And it's the crisis is not over. And therefore, we simply want to stay cautious, and we have to see how this year will end. Okay. Thank you very much. And I guess maybe a bit more of a longer term question. When you think about the development of the different buckets of your of the portfolio between products, between projects and between services because you are showing today a very strong performance on the margin side, even though the service business has been not necessarily growing a lot because of condition, obviously. But when we think about that, when we think about those three categories, where do you think you have the most opportunity in terms of margin uplift in the future? Is that in the project management? Is it on the equipment with better mix? Is that on service? And maybe related to that, are you able to give us maybe a range or some quantitative indication of the margin differential between your service and the rest of your business? I mean, believe that we can do better in all five divisions. We also have a lot of activities going on and ideas what we need to improve. Liquid and Powder was, in the last years, I would say, a pain point for GEA, as you know. This was mainly the form of Business Area Solutions. And if you look in detail to this project, we see very good projects, very stable projects, but we always see a handful of projects which are going completely south and which are which is killing significant parts of the margin. And this is where we are working on. This is what we need to establish. This is where we changed also some stuff, where we are working on stabilizing processes. And therefore, this is an area where we also expect significant increases. But as I said before to class, also this is not a quick fix. You cannot expect that within six or twelve months, we can turn it around completely. It is rather a journey of two or three years until this is really on a very professional level again. But then we will be doing much better. Thank you. Thank you for your question. The next question comes from the line of Akash Gupta from JPMorgan. Please go ahead. Yes. Hi. Good afternoon, everybody. Thanks for your time. My first question is about FX. And maybe if you can tell us what sort of euro dollar exchange rates you have used for guidance? And given euro dollar is now at 1.17, 1.18, what shall we expect in terms of full year impact from FX, which was EUR 7,000,000 in Q2, and where you also had like EUR 5,000,000 roughly from FX transaction? Yes. We don't disclose our FX rate, but I'll give you an answer nevertheless on that. When we did the first time the guidance actually, we assumed that we will not have an FX gain of €20,000,000 as we had in 2019. So we said that's going be zero there. So and now with the increased value of euros, especially against the U. S. Dollar, you have seen that we have year over year comparison in the first half, euros 13,000,000 FX loss, which is just year over year there. So this year, we're not going to only have, I think, minus the €20,000,000 not FX gain year over year, but probably €5,000,000 plus. I would think if the dollar stays that high, perhaps 5,000,000 to €10,000,000 even less or more FX expense in comparison to last year. But this is only, as I said, year over year comparison. I make myself clear, Akash? Yes. And my second one is on cash flow. So here, if you can provide some additional comments on working capital. I mean, you are guiding less than 14% for the year. Your medium term plan is 12% to 14%. We are at 13%. So like, is it fair to say that this level of working capital would be driven by the level of sales activity? So let's say, if we if we have some kind of prolonging back to COVID nineteen and if you have lower sales, then we should expect working capital to be lower or, like so if you can provide more moving parts, like, more details of moving parts and working capital in second half, that would be great. And then on CapEx, which was 1.4% of sales in first half, and you are still guiding 3% for the full year. So shall we expect a CapEx rebound in H2? Or could there be some upside on 3% CapEx for the year? Yes. Okay. Net working capital, let's go let's visit that first. So it's when you look here at our sales in the first half of the year actually, we are only down 2%. Of course, here in the last quarter, are a bit further down. So the lower net working capital is not really driven by lower sales. It's really driven by the measures we are having. It's driven by lower accounts receivable. It's different payment terms for the accounts payable. And also, of course, the advanced payments we are receiving, especially at LPT. So these are the main reasons for the lower net working capital. Now for the second half of the year, so in total, we said we expect to be below 14%. And of course, I mean, potentially, if sales as guided is that way, that would mean that net working capital is also the second half of the year would go down a bit. But do we expect really below 40% for the full year, that in the first quarter, we were above 14%? CapEx, there's not going to be any major CapEx rebound in the second half of the year. We are cash conscious. Nevertheless, we do CapEx where we see that it is needed and it helps our efficiency. Then we are, of course, spending CapEx, but it's not that we are expecting a rebound. So I would not necessarily expect that we're going to be at 3% for the year. And would this then less than 3% CapEx mean that could there be more high CapEx next year? Or that is like a savings that could be more permanent on that basis? We haven't made our CapEx budget for next year yet. So we need to see this at this point in time. We have not made any decisions to move CapEx from this year to next year there. You. All right. All right. Thank you. Our next question comes from the line of Felicitas Abismarck from Deutsche Bank. Please go ahead. Your line is now open. Yes. Thank you very much. I still have a question on your credit lines extension. I think, I mean, you have a really great liquidity position. You still have quite a lot of open lines and you're quite confident on your cash flow generation going forward. So why did you increase that now whereas all the companies were actually doing it rather in Q1? And related to that question, do you feel now comfortable in your structure and in your position that you would also consider some M and A? Okay. First question. Well, with experience comes, you need to have the umbrella with the banks when you don't need them. And as I said, we don't foresee that we actually need them, but you do this in a time when you don't necessarily need them. The ones that actually already did it in Q1 were the ones who were basically in search for real help. We didn't need that help. So we took our time actually to negotiate our conditions with the banks because we, as you said, we have the cash and the liquidity of the lines unutilized to do that. So that to your first question. And second one was Acquisitions. Acquisitions. We will actually look at acquisitions again. And let's see how the M and A market is going to be in the next twelve to eighteen months. But we are not only divesting, but we will also be actively looking to do acquisitions. Okay, super. Just one quick one. How much factoring or did you do factoring this quarter? And how much factoring would that be? We do factoring, but it's not a whole lot. It's in the very low two digit. Okay. And that hasn't increased in the last couple of months? That has not increased in the last couple of months, no. Thank you. The next question comes from the line of Georg Andrei Frink from HSBC. Please go ahead. Yes, good afternoon and thanks for taking my questions. The first one relates to the order intake trends maybe on a more sequential basis and going into July, maybe you can comment whether you have seen, say, a month for month basis, a rather stable development of orders into July and the August or whether we see some orders falling off the cliff, given your comments on a challenging H2? And maybe also some color on the regional split on order intake, that will be very helpful. Thank you. Yes. I mean if we look at the current order intake every week, it is let's say, we are I would say, on the new normal, yes, what we saw also in Q2. We don't see the bullish order intake at the moment, which we got in Q1. We, on the other hand, are still quite optimistic because, to our knowledge, there are only a very, very few projects really canceled. So the majority of customers are postponing or waiting. And this is also it's also the fact that we are in close negotiation and discussion also for medium sized and larger projects. So it does not look different, let's say, like the average in Q2, I would say. Okay. Thank you. That's very helpful. And my second question, coming back to the windfall savings. You mentioned in your in the bridge already the savings on the SG and A side. But maybe you can give, let's say, an overall number on windfall savings, including furlough schemes or could provide? That would be helpful. Well, the windfall savings actually were really marketing and fares, which I said was €15,000,000 in SG and A, another 10,000,000 And as I said, by far, the most of it would have been chargeable to customers. So it's really the 15,000,000 So far, we have short time workers, just very little. So the savings out of that is really in the low single digit million, if at all. We have seen that somehow in Italy, of course. In Germany, so far, nearly none. Okay, great. Thank you. Thank you. The next question comes from the line of Lars Brorson from Barclays. Your line is now open. Please go ahead. Great. Thank you. Hi, Stefan, Markus, Oliver. Maybe one follow-up and two questions, if I can. Just on that prior question, Stefan, with regard to order intake, you're saying it looks very much like Q2, so call it $1,000,000,000 or so per quarter. Obviously, Q2 was characterized by a pretty strong April, albeit driven by one large order and then, should we say, double digit declines in May and June. So just want to clarify the cadence, if you like, in your short cycle business in base orders. There hasn't been any meaningful uptick there as you exited Q2 and into Q1. That will be question one. And then question two related to that, any more visibility around some of these larger orders that you keep saying are delayed into H2, I guess, in LPC and RT, you're talking about delays here. Do you have some visibility of getting them over the line in Q3? I mean, I know that this information are very, very important for you and also, of course, for us, but it's a really, really very volatile situation. I mean, we see that customers are postponing very quickly, and we also see that they are coming back to the table to discuss quickly. So it's I mean, it is not a normal year. And therefore, it's also very, very difficult to predict. I can only tell you that we have a solid project funnel that there are interesting projects, which we are talking about. I cannot tell you how the world looks like in eight weeks. And if this will encourage or demotivate our customers to place an order or not placing an order. Therefore, it's hard for me or almost impossible to give you really a clear guidance. The only thing I can say at the moment today, we don't see that it is really becoming worse or that we want to be too pessimistic. That leads me on to my sort of first question really, which is your the implied second half development in your business as it relates to your divisional guidance for the year. And again, I'll give you credit for giving us guidance even at the divisional levels, many other companies obviously don't. So thank you for that. But I had two specific questions within that on Feet and on your FHT business. On Pharm Technologies, firstly, I mean, you're now looking for a significant decline for the full year, which leads me to suggest that, that implies a mid- to high single digit decline in H2. I'm struggling a little bit with that after a 6% order growth in the first half. And I think you yourself mentioned the external forecast earlier in your presentation that suggests growth overall for the farming business. So what is it within your business that seems to be getting worse in the second half as is implied by your guidance? Okay. Thanks for this question. I mean, yes, we have also the guidance here for the individual divisions. You have to know that when we say we are slightly declining, then that means maximum minus 5%. And if it is above minus 5%, if this is our perception, then we are talking about a significant decline. And this is what you have to know. So there is nothing in between, between slightly and significant in our language, which makes it maybe a bit more dramatic than it is. Yes. That was I understand that. I understand how you are categorizing it. I'm just trying to understand divisionally what is it that seem to be getting sequentially worse, specifically in Pharm Technologies? I mean, it's simple that farm technology is these are individual investors. These are the farmers. They are sitting at home at the table and making the decision. And they always invest when they see that cash is coming in. And we have some uncertainties about the milk price, and therefore, we are cautious here. And on FHT, if I can, you're now guiding down significantly at the sales level, but obviously, EBITDA significantly higher. Can you also give a little bit of divisional commentary? I know it's very granular, but I'm just curious. I mean, FHT is 50 sorry, 80% food. I wonder what it is within that, that's getting worse. But conversely, what it is that's delivering better cost savings for you? Maybe specifically, if you could comment on Pavan within that, that would be helpful for me. Yes. I mean, have to know that a big part of our business in FHT is Italy. And that is also here reflected in our guidance that we might also be not as good as originally expected in conducting all the sales. At the you first half year, we're down by 5.3%. And if you prolong this actually also for the second half, you end up above 5%, which means significantly. I mean that's what we are looking at when we say significantly here. Thank you, Markus. Can I, thirdly and finally, just check a couple of the key items for the bridge as it relates to your guidance for the full year at the adjusted EBITDA level? If I understand things correctly, you're now saying FX, you expect to be a negative EUR 25,000,000 to 30,000,000 year over year. Your headcount savings should come in close to EUR 25,000,000 for the full year. You said EUR 6,000,000 per quarter, something similar for procurement savings. Can you help me a little bit with other key items in your bridge, specifically special effects, if you can help me there. That's obviously EUR 9,000,000 in the quarter. I wonder how we should think about the second half. And also just clarify whether there's anything incrementally coming this year as far as ERP IT is concerned. I have that at zero in my bridge. Obviously, there's a big investment phase ahead of you beyond 2020. But can you help me a little bit with some of those key items as it relates to this year? Yes. Well, we don't expect to see any outstanding expenses extraordinary expenses put it this way for SAP project. That's all built into the guidance and that's running on track. So don't expect anything there. What we said that we also had in the first half of the year, we took an allowance for potential allowance basically an allowance for potential bad debt, which was €7,000,000 And when I said once how to derive to the $480,000,000 I said bad debt allowance could be up to like €25,000,000 We don't have that in there yet. But as I said, we took a €7,000,000 charge in the first half of the year as precautionary measures. And then, of course, we had an estimated corona effect in there for the $480,000,000 And so far, our EBITDA has been quite strong. So let's see in the coming months, as Stephane put it, let's stay cautious for some more months there. With in regards to the special items there, Can't make any predictions for the coming months. They come as we incur them. And the two special items we had in the first half of the year was really here the bad debt allowance, I just mentioned, was €7,000,000 And there was a legal case, which we settled at Feet that was slightly below €2,000,000 These were the only special items so far we put here on the list. So and you know the special items actually from our presentation from 2019. Do I foresee anything in the second half of the year? Yes, the only thing I said we are watching potential bad debt reserves, which we have to take carefully, but that's the only thing I can see right now. Thank you, guys. Thank you. The next question comes from the line of Sebastian Growe from Commerz bank. Please go ahead. Your line is now open. Yes. Good afternoon, Sebastian here. Thanks for taking my questions. First one is around Dairy Processing. You still show the sales growth for that particular channel with 3% in the quarter. However, there's a lack of disclosure when it comes to orders. And then my interest is around really the order funnel, particularly in China because someone looks at the details on the regional order trends. And obviously, China is still doing extremely well with the book to bill of 1.16 for the last twelve months rolling. So any color on the pipeline there for Dairy Processing, in particular, would be much appreciated. And on your earlier comments for the execution part within Dairy Processing, Can you give us a sense at least how much of the portfolio currently is doing not well, I. E, what you indicated as weak product execution, which need times to be fixed, etcetera, to just get a better sense of really how much is in fire in a way? And the last one is around portfolio. I think back in the days, when you took over as CEO, CFO at GEA, you said that you wanted to fix the house first before returning to an organic growth. So what are the strategic target areas so that you have on mind? Is it more the regional or more the technology level? Any color there would be great. And does any M and A also require further exit of the non greatly performing parts of the portfolio? That would be interesting as well. Okay. Let me just first start with the question of order intake in LPT. This is, of course, impacting our overall order intake situation significantly because we also see here projects in a size of €10,000,000 20,000,000 €30,000,000 We still have, like I said, an interesting project pipeline. It's not that we don't see any projects in the pipeline. It's rather the question, are the customers are going to order this now? Are they going to wait? Is it postponed? And this is, I have to say, really impossible for me to say what will happen because the situation the COVID situation is so volatile and so unpredictable that I really cannot tell you how good it is to have all these projects in the pipeline or what is really the value of having project in the pipeline. This is very much, let's say, depending on how the COVID situation continues and how willing the customers are to jump and to order. Concerning bad project, this is which we see in the project management in LPT. This is not, let's say, that I can say this is coming from one company or from one special business. Of course, we have businesses which are quite good margin wise, others are a bit lower. But it is more that we see when a project is not really managed, when a project was not really pre calculated that then we have things to see, which we don't like to see. So it's more about now introducing the right processes, approval steps, project management, but it's not associated with a specific, let's say, business within LPT. And the third question was about the portfolio and the disinvestment. I mean, we said very clearly, when we started here as a new management team, first of all, we have to fix the company, We have to change the organization. We have to create transparency. We feel that we are really moving forward here. The new organization is really, really making a huge difference here in the organization. And we are starting, like Markus already said, to look what kind of acquisitions could interesting for us. It is, I would say, still too early to expect any major acquisition within the next two, three, four months. But we are starting to think about that, and we are looking what could be a good fit for GEA. We also will continue to do the disinvestment of the underperforming units, which we want to get rid of. However, you can imagine that it is not so easy during this COVID times. I mean, there are a lot of corporations who are very reluctant in acquiring companies. So banks are also not so pushy in making loans and giving loans and debt out to private equity. So it's also here a very difficult situation. And normally, if we are going to de invest companies, which are not really the outperformers, It's not a prime asset. So this all comes together and makes it difficult. Anyway, we believe that we can still, this year, also report some successes here. And we are quite optimistic that we can, despite the very difficult situation, report successful debt investments in due time. Okay. That is helpful. If you may just briefly follow-up on the magnitude really for the dairy processing, which is not going well. So we're talking a run rate EUR 900,000,000, give or take, in terms of revenues annualized that is. So how much of the EUR 900,000,000 revenues is not greatly managed, be it pre calc, be it the project execution part to just get a rough idea what sort of is the upside opportunity? And the other question on the portfolio, when you talk about significant, what does it mean in terms of potential deal size? Can you just share some thoughts around that with us? I mean, the first question is really, really extremely difficult to answer. I mean, if I look back the last two years, we, of course, saw projects where we lost a high single digit million number in one single project, yes. But this is not the normal. But we see if we, let's say, collect all these negative projects together, it is a significant number, which would make a huge difference in the profitability of LPT if we simply imagine that we execute all projects like we calculated. Then we would have a huge upside potential, and this is what we are looking for. Deal size for DES investments, we are when we are talking about DES investments, we disclosed that we are going to sell GEA BORC. We are in final negotiations with potential acquirers. And that is something we are quite optimistic that we can execute that. And the others we are thinking about are normally smaller ones. When we look at the other side, when we are talking about acquisitions, what could be interesting for GEA, we are definitely looking for rather larger acquisitions than smaller acquisitions like GEA used to do in the past. So we are used to buy very often companies €20,000,000 €40,000,000 80,000,000 turnover. It's not that we say we don't do that at all, but we are looking more on rather on larger corporations because we believe and we think that this would make a bigger difference and also could be handled better than doing the small acquisitions. Okay. That's helpful. Thanks so much. Thank you. I think a follow-up question from Klas Berglund from Citi. Please go ahead. Yes. You. Thank you for the follow-up. So just on net working capital again, Markus, I just want to understand this a bit better. You say that it's purely a structural improvement, but you typically release working cap a bit when demand is weaker. So but you say it's structural. Could you explain a little bit in terms of why you can collect quickly right now, why the payment terms have improved? So what has changed in organization to improve it structurally? Well, we set up last year a net working capital project. I mean when you look at net working capital working capital, set up a project office for that. So since last since August, we are changing actually our internal processes for that. And we can see actually how much we are collecting, how much we have in overdues. We can also see how the accounts payable are and how the advance payments went, especially at LPT. So if you say sales are going down or net working capital is going down due to sales going down, the net working capital ratio wouldn't change. But when you change the net working capital ratio, not only for one quarter, you are changing structurally the net working capital you need. That's the answer, Klas. I mean otherwise, you always have like 14%, 15% or whatever percent of sales, then sales goes down and net working capital in absolute terms goes down. But in our case, it went down as a ratio quite significantly, as I said, by six percentage points if you take a look at year over year. And that was the main reason why we had such a strong net working capital reduction. We're changing our processes. And additionally, what I said, this is how when we when you make people responsible again, and now the divisions, the business units below are not only responsible for their P and L, they're also responsible for the balance sheet, especially what they can influence and manage, which is their net working capital. And they're incentivized on EBITDA, and they're incentivized on ROCE. And the moving part in capital employed, which they can manage, is, again, net working capital. So this is also in line with the incentivization we put in place. Yes. Very clear. Very good. I just want to confirm. And then my second one is for you, Stefan, in the comment you just made on M and A. You say that you are ready for larger deals or you rather prefer doing larger deals than small. But was that a general comment? Or is that something that you're actively looking for right now? Because I was previously under the impression that you wanted to achieve your strategic targets before doing deals. So I just want to understand the timing and what you meant with that comment. Yes. I mean, as I said, don't expect that we are closing any deal within the next two, three, four months. What I said is when I started when we started as a new management team, we said it's first about fixing the house. It's first about bringing the organization in order, creating transparency, building up trust again at the capital market, things like that. And we feel that we could really make a difference during the last 1.5. And if you look at the numbers, also at the earnings we see now, I think we are on the right track. We are, on the other hand, also believing that there are a lot of interesting targets around, which could make which could have a big impact and which could really fit to the group. And what I said is that we are starting to look out and that we rather look for companies with a three digit turnover instead of companies with a two digit turnover because if you do a solid due diligence, it's, at the end, the same job you have to do. And if you think how you can manage this company, it's much better as larger the company is, normally, as more stable it is. And if I also look back at the history of GEA during the last five or ten years, GEA bought a lot of very small companies, very often owner driven, then the owner stepped out, two, three key people left and then the mess began. And this is also different if you buy larger organizations. And therefore, even if I don't exclude that we also might buy sometimes a smaller company, if it is an ideal fit, if we can consolidate a market or whatever. But going forward, we will look much more on larger corporations, which could make a good fit with GEA than buying all the small companies around. Thank you. Thank you. Next question comes from the line of Daniel Gleim from MainFirst. Please go ahead, Daniel. Yes. Thank you very much for taking my question. And the first one is a clarification question for Stefan. You mentioned that you're in the final stages of negotiation of with potential buyers for the divestments of the business. At the same time, there are some COVID-nineteen related hurdles including the refinancing of a potential deal by the bank. So could you clarify whether the divestment of the €200,000,000 300,000,000 is still the right size to think about it? And whether you think that could materialize in the second half? Or is that something we should rather expect for 2021? That is question number one. Yes. I mean, we will not be able to manage and disinvest still this year 200 or €300,000,000 turnover. We might end up in a three digit number at the end of the year. But also here, it's the same valid, like I said, for order intake, it's a very volatile situation. We are quite good on track. However, the deal is done when the deal is done. But there is no change with regards to your intention to sell it? Or might you eventually keep it on board? No, there is no change in intention. So the second question is for Markus, more big picture one. Qualitatively. When we think about the Capital Markets Day presentation and all these cost saving potentials that you envisage now flowing in the COVID-nineteen situation, has there been any changes with regards to the time line and the magnitude of the savings that would be the part number one? And secondly, as we have moved along the time line, are there any meaningful incremental pockets of savings like the ones that you mentioned with the bad projects that you could end? Is there anything else you can tell us at this stage with regards to total savings on the upper end? Thank you. So savings wise, time line, I would say, is such a situation with COVID-nineteen that expedites things significantly. And it makes everyone in the group, and we are a widespread group, really aware that they need to bring in the savings. So that's most important. It's really getting the right mindset into the company. So in that sense, such a situation is, as a matter of fact, helpful in achieving the savings. So there has been no change in volume, but we are running as fast as we can and hopefully much faster than what we said at the Capital Markets Day with getting the savings in. After being here for more than a year there and longer when I was there at the Capital Markets Day, I think the company has significant potential everywhere there. And there's, of course, also potential, what you said, in the project execution at LPT. We said this before. We see there that we can reach there a good margin. We're not saying when, as someone asked before and how much, but there is additional potential actually to improve our margin significantly when you look at the overall company. And that was just an example. Did that answer your question? I can't get more specifically actually than that. Yes. We're looking forward to some more elaboration on that. But maybe on the first part, when you say much faster bringing in the savings, what time frame do you have in mind for much faster? Yes. There's no new time frame, which we give out. But as I said, we are running as fast as we can because you never know how order intake will be in the next six to nine months. And we are and if the order intake stays that it is great, we're going have better EBITDA. If the markets would deteriorate further, as a potential, we need to have the savings in as quickly as possible anyway. So as I said, we're running as fast as we can right now to bring the savings. And as I said also, it's helpful that there's some right mindset with that. The sense of urgency is everywhere. Thanks for that, Markus. Thank you. One last question comes from the line of Jorg Andrei Fink. Please go ahead from HSBC. Yes. Just to follow-up, the remaining. The first one was a very quick one on the tax rate, which has gone up. Should we expect 30% to be the tax rate also going into 2021? No. Until 2021, it could be a bit lower. Actually, we are looking right now at more than around 28% approximately for 2021. But this year, it's 30%. And it will depend on actually where our earnings are going to be next year. But we do not expect anything higher than 30%. Perhaps that's a little bit downward potential, down to like 28% for next year. But we need to see where the earnings will be then. Okay. Very clear. And second question is just a follow-up to your comments on working net working capital. As you mentioned, the prepayments on LPT quite a few times. To which extent is the outlook for this year and the midterm targets dependent on a large project inflow, given that probably, I mean, we see nowadays for the moment, the large project activity is somewhat stalling. Yes. We factored that in when we said this year, we expect to be below 14%, and we can also be still within our range of 12% to 14% without a strong order intake of big projects with a lot of advanced payments. If we can get that, that, of course, very helpful and it expedites our network and capital reduction. And of course, the magnitude would be higher. But as I said, with the network and capital project in place and the new processes, we are able to manage actually within the range of 12% to 14%. And depending on advanced payments, you'll be more at the lower end or at the higher end. But for this year, we feel comfortable with less than 14% already. Very clear. Thank you. Are no more questions at this time for closing remarks. Please go ahead, Stefan. Yes. Thank you. So I would like to thank you all of you for participating, for your interest in GEA and for your great questions. Let me summarize it. I think we had a very solid start into the year. The first half year was a good one, despite we had a decline in order intake. In sales, we could in the Q2, mean. And in the half year, we had even an increase of order intake and only a slight decrease in sales, which is for a machine building company, I would say, quite good and outstanding. And now the profitability increased. We are quite good on track with all our measures we put in place to improve the performance of the company. The new organization is really working great and is very well accepted from our employees and managers. So the big question mark remains the COVID situation. It is a very volatile period of time, And we all hope that this COVID situation will disappear hopefully in some months that the vaccine is found and that we can go back to normal life, but situation will remain very volatile. So be careful, stay healthy and talk to you next time. Thanks. Thank you. And that does conclude our conference for today. Thank you all for participating. You may all disconnect. Stay safe.