Ladies and gentlemen, thank you all for standing by, and welcome to this GEA Group second quarter 2020 conference call. At this time, all participants will be on a listen-only mode. There will be a presentation followed by a question-and-answer session. At which time, if you wish to ask a question, you need to press star and the number one on your telephone keypad and wait for your name to be announced. I must advise you all that this conference is being recorded today, Wednesday, the 12th of August, 2020. Without any further delay, I would like to hand the conference over to the first speaker of the day, Mr. Oliver Luckenbach. Please go ahead, sir.
Thank you very much. Good afternoon, ladies and gentlemen, and thank you for joining us today for our second quarter 2020 earnings conference call. With me on the call today are Stefan Klebert, our CEO, and Marcus Ketter, our CFO. Stefan will begin today's call with the highlights of the second quarter 2020. Marcus 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&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. 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-19-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 9.8% and 6.6% respectively, mainly related to lower activity and demand due to COVID-19. The book-to-bill ratio was 0.89 versus 0.92 in the second quarter 2019.
Nevertheless, our EBITDA before restructuring measures increased significantly by 26.6% to EUR 140.4 million. 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 EUR 330 million a year ago into a net cash position of EUR 92 million this quarter. I would also like to comment on COVID-19, 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 that 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 site and offices, and many colleagues work 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 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 GEA safely through this difficult time. 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 liters of hygiene liquids for disinfection we have in our company. 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-19 so far. In the second quarter, 14 out of our 61 production sites worldwide had to close due to COVID-19 regulations in their countries. In summary, the 14 sites were impacted by 159 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, Marcus, to expand on the business and financial review.
Thank you, Stefan, and also a warm welcome from my side. Stefan already mentioned our very solid bottom line performance. Please let me put our Q2 2020 figures into perspective. This is currently an extraordinarily 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 of 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 EUR 111 million to EUR 140 million 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-19. 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 EUR 30 million we took as accruals for project risks. SG&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 EUR 9 million last year.
In comparison to last year, we had to digest an FX headwind of EUR 7 million, 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, +EUR 12 million and the negative FX impact of -EUR 7 million separately. We showed underlying operating improvement of EUR 24 million. 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. Overall cost 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 EUR 335 million and included just one large order with EUR 18 million. The current situation is generally characterized by lackluster large order development due to COVID-19 related travel restrictions. Also, customers are delaying their order placements into the second half of 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 chemical. These 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, EUR 10 million 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 2019.
This pays now off in the form of lower personnel expenses. Let me now talk about Food and Health 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 & Packaging. Business unit Pharma & 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 second half of 2020 as a result of the increased level of uncertainty related to COVID-19. 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 sense, those business units with a high share of legal 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 EUR 12 million to EUR 22 million.
This improvement was driven by a slight improvement of gross profit and by lower overhead costs. The impact from special items is positive by EUR 6 million. 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, 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-19.
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. Overhead costs improved by EUR 4 million, 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, was especially driven by delayed customer decisions in the business unit projects. Especially those regions which were strongly affected by COVID-19, such as Italy, recorded a deep decline.
It should be also noted that the second quarter 2019 was an extraordinarily strong quarter in terms of order intake. Sales developed often 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 down compared to 33.3% in the second quarter of 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 EUR 276 million or almost 6 percentage points to 13%. This represents the best net working capital to sales ratio in a 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 number 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. This quarter's net working capital figure is a perfect proof of this. In Q2 2019, the contribution from net working capital was an outflow of EUR 72 million. This year, we have an inflow of EUR 64 million. This is a swing of EUR 136 million, 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 26th, but paid the maximum amount to our shareholders, which we can without an AGM.
Our proposal for the remaining EUR 0.43 per share is still valid and will be up for decision on November 26th. The key takeaway from this chart is our net cash position of EUR 92 million, driven by strong development of net cash flow. Chart number 18. 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 EUR 1.1 billion, of which we have only utilized EUR 422 million. Considering our cash of EUR 515 million, we increased our net liquidity to EUR 92 million in comparison to a net debt of EUR 330 million a year ago. Even if we consider that we plan to pay another dividend of, in total, EUR 77 million this year, it's still an improvement of EUR 345 million.
Furthermore, our financial headroom amounts to EUR 650 million 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 EUR 100 million. Furthermore, a second syndicated credit facility was agreed upon with a volume of EUR 200 million. We are also preparing ourselves to be potentially able to participate in a commercial paper program of up to EUR 500 million, but only if needed. 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. With that, I hand it back to Stefan.
Thank you, Marcus. 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 second quarter of 2020. 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. If you especially look at dairy farming, dairy processing, which is a big part of our business, that also looks quite good here. On the right chart, Oxford Economics forecasts 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%. The value-added output for the segments 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-19, 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 EUR 4.88 billion.
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 EUR 430 million-EUR 480 million. For ROCE before restructuring measures, we now expect a number between 12% and 14%, up from former guidance of between 9% and 11%. Before I close with our roadmap for this year, let me focus on our key priorities for 2020. First and foremost, we will manage the impact of COVID-19 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 cost 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. 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 roadmap for 2020. Our next reporting date is November 5th for the release of our Q3 numbers, and on November 26th, we will hold our annual general meeting, which was originally planned for end of April. With that, I hand it back to Oliver for the Q&As.
Yeah. Thank you very much, Stefan. Thank you very much, Marcus, for your comments. Before we begin the Q&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&A lines for the Q&A session. Operator, please take over.
Once again, for any questions, please press star and one. Our first question comes from the line of Klas Bergelind from Citi. Please go ahead.
Yes. Hi, Stefan and Marcus. It's Klas from Citi. My first question is on the savings and embedded margin out of the backlog. On the EUR 32 million margin impact on slide 10, Marcus, you have EUR 16 million reversing from last year's review, clean impact is EUR 16 million. It could be price mix in there as you say that the back margin has improved. You have some productivity improvements in that volume number years before that. Finally, we have a clean SG&A saving. I get it's around EUR 30 million-EUR 40 million perhaps. If we try to break this down, it would be very helpful. How much was savings out of the 800 program in LPT, less travel, bonuses, and so forth? 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. Klas. Hi. We have seen approximately in travel expense reduction in the margin only of EUR 10 million. We have seen another EUR 15 million in the OpEx, in the SG&A expenses. The EUR 10 million, which I just said, most of that is usually chargeable to customers. The effect of less travel in the margin is not that significant, really, because as I said, we can charge this. The way to look at here the margin analysis is really that we have seen here an impact special items of EUR 16 million that needs to be deducted solely here on the margin improvement of new machines. The EUR 34 million, which we are showing for new machines, you need to deduct the EUR 16 million and derive at a net figure for the improvement margin of new machines.
Perhaps of the EUR 10 million, it's perhaps EUR 2 million around that number, plus minus, perhaps only, that would perhaps not be chargeable. It's really a lesser amount. Most of it should have been chargeable. Yeah.
Okay. On the SG&A. I get that when I strip out on both ends, I get that to the EUR 16 million impact clean. How sustainable is that?
As I said, we have seen approximately here, EUR 15 million from-
Okay.
less travel, less marketing expenses, less [FTEs] that means. That is really savings on the SG&A side because that is not chargeable to any customers. Additionally, you asked for the headcount 800 program. That is approximately EUR 6 million per quarter.
Okay.
We have seen purchasing also around EUR 6 million also in that.
Okay. No, that's very helpful. Thank you for that. Maybe my second one, and I promise only two, is a follow-up on the sustainability of the margin LPT. In LPT, we nearly do a 10% margin and the target is 6.5%-7%, and it used to be a low double-digit margin business during the dairy boom years, the super cycle. 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 dairy boom, but that you see some growth. Is this a 12% margin business relatively quickly? Can LPT soon deliver double its margin target? Any reason for why that wouldn't happen, obviously beyond macro?
Hi, Klas. Stefan is speaking. In the project business, we had to make a lot of changes, and we are still doing many changes. You know that we started to change the management team. We are much more cautious in what we take in. It is, of course, I would say our most complex business. That's the nature of project business. I would not expect that in a very short time we will end up as a number which you say. 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.
Not a quick fix.
All right. Thank you for your question. Our next question comes from the line of Lucie Carrier from Morgan Stanley. Please go ahead.
Good afternoon, gentlemen. Thanks for taking my question. I just maybe wanted to ask around the guidance. You seem to have done so well in the first half of the year. We are now kind of already mid-August. I'm guessing you have good visibility into the second half. It seems that you are guiding for a second half lower than the first half from an adjusted EBITDA standpoint. I guess we'd 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, Lucie, for this question. Stefan is speaking. We are living in a very uncertain time. This is also reflected in our guidance. 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. The crisis is not over. Therefore, we simply want to stay cautious. We have to see how this year will end.
Okay. Thank you very much. I guess maybe a bit more of a longer-term question, when you think about the development of the different buckets of the portfolio between products, between projects, and between services. 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 the condition, obviously. 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? 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?
We 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 former Business Area Solutions. If you look in detail to this project, we see very good projects, very stable projects. We always see a handful projects which are going completely south and which is killing significant parts of the margin. 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. Therefore, this is an area where we also expect significant increases. As I said before to Klas also, this is not a quick fix.
You cannot expect that within 6 or 12 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. 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.
Yeah. 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 rate you have used for guidance. Given euro dollar is now at EUR 1.17, EUR 1.18, what shall we expect in terms of full year impact from FX, which was EUR 7 million in Q2, where you also had EUR 5 million roughly from FX transaction?
Yeah, we don't disclose our FX rate, I 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 EUR 20 million as we had in 2019. We said that's going to be zero there. 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 EUR 13 million FX loss, which is just year-over-year there. This year we're not going to only have, I think, minus the EUR 20 million, not FX gain year-over-year, but probably EUR 5 million+ , I would think if the U.S. dollar stays that high. Perhaps EUR 5 million-EUR 10 million even less or more FX expense in comparison to last year. This is only, as I said, year-over-year comparison.
Did I make myself clear, Akash?
Yeah. My second one is on cash flow. Here, if you can provide some additional comments on working capital. You are guiding less than 14% for the year. Your medium-term plan is 12%-14%. We are at 13%. Is it fair to say that this level of working capital would be driven by the level of sales activity? Let's say if we have some kind of prolonged impact of COVID-19, and if you have lower sales, then we should expect working capital to be lower? If you can provide more moving parts, more details of moving parts and working capital in the second half, that would be great. Then on CapEx, which was 1.4% of sales in first half, and you are still guiding 3% for the full year.
Shall we expect a CapEx rebound in H2, or could there be some upside on 3% CapEx for the year?
Yeah. Okay, net working capital. Let's revisit that first. 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, we are a bit further down. 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. Also, of course, the advanced payments we are receiving, especially at LPT. These are the main reasons for the lower net working capital. Now, for the second half of the year and so on, total, we said we expect to be below 14%.
Of course, potentially, if sales is guided that way, that would mean that net working capital is also the second half of the year would go down a bit. We expect really below 40% for the full year, considering 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. We are, of course, spending CapEx, but it's not that we are expecting a rebound. I would not necessarily expect that we're going to be at 3% for the full year.
Would this then, less than 3% CapEx mean that could there be more high CapEx next year? Or that is a saving that could be more permanent than this is?
We haven't made our CapEx budget for next year yet. 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.
Thank you.
All right.
All right. Thank you. Next question comes from the line of Felicitas von Bismarck from Deutsche Bank.
Yes. Thank you very much. I still have a question on your credit lines extension. I think 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. Why did you increase that now, whereas all the companies were actually doing it rather in Q1? Related to that question, do you feel now comfortable in your structure and in your position that you would also consider some M&A?
Okay. First question. Well, with experience comes you need to have the umbrella with the banks when you don't need them. 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 as you said, we have the cash and the liquidity and the lines unutilized to do that. That to your first question. Second one was?
Acquisitions. M&A.
Acquisitions. Yeah. We will actually look at acquisitions again. Let's see how the M&A markets it's going to be in the next 12 to 18 months. 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. That hasn't increased in the last couple of months?
That has not increased in the last couple of months, no.
Okay. Thank you very much.
You're welcome.
Thank you. The next question comes from the line of Jörg-André Finke from HSBC. Please go ahead.
Yes, good afternoon, 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, let's say, on a month-on-month basis, a rather stable development of orders into July and the beginning of 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.
Yeah. If we look at the current order intake every week, I would say we are on the new normal. What we saw also in Q2, we do not 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 few projects really canceled. The majority of customers are postponing or waiting. It is also the fact that we are in close negotiation and discussion also for medium-sized and larger projects. It does not look different, let us say, like the average in Q2, I would say.
Okay. Thank you. That's very helpful. My second question, coming back to the windfall savings you mentioned in the bridge already, the savings on the SG&A side, but maybe you can give, let's say, an overall number on windfall savings, including furlough schemes or Kurzarbeit. That would be helpful.
Well, the windfall savings actually were really in travel, marketing, and fairs, which I said was EUR 15 million in SG&A, another EUR 10 million, and as I said, by far, the most of it would have been chargeable to our customers. It's EUR 3 million of the EUR 15 million. Far, we have short-time workers just very little. 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.
Very little.
In Germany.
Very little.
so far, nearly none.
Okay, great. Thank you.
Thank you. The next question comes from the line of Lars Brorson from Barclays. The line is now open. Please go ahead.
Great. Thank you. Hi, Stefan, Marcus, 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 EUR 1 billion 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. Just want to clarify the cadence, if you like, in your short-cycle business and base orders. There hasn't been any meaningful uptick there as you've exited Q2 and into Q1. That would be question one. Question two related to that, any more visibility around some of these larger orders that you keep saying are delayed into H2? I guess both in LPT and RT, you're talking about delays here.
Do you have some visibility of getting them over the line in Q3?
I know that this information are very important for you and also, of course, for us, but it's a really very volatile situation. We see that customers are postponing very quickly, and we also see that they are coming back to the table to discuss quickly. It is not a normal year, and therefore it's also 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 a order or not placing a order. 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 the implied second half development in your business as it relates to your divisional guidance for the year. Again, I'll give you credit for giving us guidance even at the divisional levels. Many other companies obviously don't. Thank you for that. I had two specific questions within that on FT and on your FHT business. On Farm Technologies, firstly, 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. I think you yourself mentioned the external forecast earlier in your presentation that suggests growth overall for the farming business.
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. 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 -5%. If it is above -5%, if this is our perception, then we are talking about a significant decline. This is what you have to know, though, there is nothing in between slightly and significant in our language, which makes it maybe a bit more dramatic than it is.
Yeah. No, I understand that. I understand how you are categorizing it. I'm just trying to understand divisionally, what is it that seems to be getting sequentially worse, specifically in Farm Technologies?
It's simple that Farm Technologies, these are individual investors. These are the farmers. They are sitting at home at their table and making the decision. They always invest when they see that cash is coming in. We have some uncertainties about the milk price, and therefore, we are cautious here.
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. FHT is 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. Specifically, if you could comment on Pavan within that would be helpful for me.
Yeah. You 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.
Thirdly, sorry.
When you look at the 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. That's what we are looking at when we say significantly here.
Thank you, Marcus. 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 -EUR 25 million to EUR 30 million year-over-year. Your headcount savings should come in close to EUR 25 million for the full year. You said EUR 6 million 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? There's obviously EUR 9 million in the quarter. I wonder how we should think about the second half. Also just clarify whether there is 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?
Yeah. Well, we don't expect to see any outstanding expenses or extraordinary expenses, put it this way, for our 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, or an allowance for potential bad debt, which was EUR 7 million. When I said once how to derive to the EUR 480 million, I said bad debt allowance could be up to EUR 25 million. We don't have that in there yet, but as I said, we took a EUR 7 million charge in the first half of the year as precautionary measures. Of course, we had an estimated corona effect in there for the EUR 480 million, and so far our EBITDA has been quite strong.
Let's see in the coming months, as Stefan put it, let's stay cautious for some more months there. In regards to the special items there, can't make any predictions for the coming months. They come as we incur them. The two special items we had in the first half of the year was really here the bad debt allowance I just mentioned was EUR 7 million, and there was a legal case which we settled at FT that was slightly below EUR 2 million. These were the only special items so far we put here on the list. You know the special items actually from our presentation from 2019. Do I foresee anything in the second half of the year?
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 Commerzbank. Please go ahead. The 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 the 3% in the quarter. However, there's a lack of disclosure when it comes to orders, and my interest is around really the order funnel, particularly in China, because when one looks at the details on the regional order trends, then obviously China is still doing extremely well with the book-to-bill of 1.16 for the last 12 months rolling. Any color on the pipeline there for dairy processing in particular would be much appreciated.
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 indicate as weak project execution, which needs time to be fixed, et cetera, to just get a better sense of really how much is on fire in a way? 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 inorganic growth. What are the strategic target areas that you have on mind? Is it more the regional or more the technology level? Any color there would be great. Does any M&A also require a further exit of the non-greatly performing parts of the portfolio?
That would be interesting as well. Thank you.
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 EUR 10 million, EUR 20 million, EUR 30 million. 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 of are the customers going to order this now? Are they going to wait? Is it postponed? This is, I have to say, really impossible for me to say what will happen because the COVID-19 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 these projects in the pipeline.
This is very much, let's say, depending on how the COVID-19 situation continues and how willing the customers are to jump and to order. Concerning the bad project, 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. 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. 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. The third question was about the portfolio and the disinvestment.
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 making a huge difference here in the organization. We are starting, like Marcus already said, to look what kind of acquisitions could be interesting for us. It is, I would say, still too early to expect any major acquisition within the next two, three, four months. 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 these COVID times.
There are a lot of corporations who are very reluctant in acquiring companies. Banks are also not so pushy in making loans and giving loans and debt out to private equity. It's also here a very difficult situation. Normally, if you are going to disinvest companies which are not really the out-performers, it's not a prime asset. 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 disinvestments 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. We're talking a run rate, EUR 900 million, give or take, in terms of revenues, annualized it is. How much of the EUR 900 million revenues is not greatly managed, be it pre-calc, be it the project execution part? To just get a rough idea what is the upside opportunity. 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?
The first question is really extremely difficult to answer. 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. This is not the normal. 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 pre-calculated, then we would have a huge upside potential and this is what we are looking for. Deal size for disinvestments. When we talk about disinvestments, we disclosed that we are going to sell GEA Bock. We are in final negotiations with potential acquirers and that is something we are quite optimistic that we can execute that. 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. GEA used to buy very often companies EUR 20 million, EUR 40 million, EUR 80 million 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 Bergelind from Citi. Please go ahead.
Yeah, thank you. Thank you for the follow-ups. Just on net working capital again, Marcus, 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. 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? What has changed in organization to improve it structurally?
Well, we set up last year a net working capital project. When you look at net working capital, set up a project office for that. Since August of last year, we are changing actually our internal processes for that. 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 advanced payments went, especially at LPT. If you say sales are going down, net working capital is going down due to sales going down, the net working capital ratio wouldn't change. 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.
Otherwise you always have 14%, 15% or whatever percent of sales, then sales goes down and net working capital in absolute terms goes down. In our case, it went down as a ratio quite significantly, as I said, by 6 percentage points. If you take a look at the year-over-year. 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 you make people responsible again and now the divisions, the business units below are not only responsible for their P&L, they're also responsible for the balance sheet, especially what they can influence and manage, which is their net working capital. They're incentivized on EBITDA and they're incentivized on ROCE. The moving part in capital employed, which they can manage, is again, net working capital.
This is also now with the incentivization we put in place.
Yep. Very clear. Very good. Yes, I want to confirm. My second one is for you, Stefan, in the comment you just made on M&A. You say that you are ready for larger deals or you rather prefer doing larger deals than small. Was that a general comment or is that something that you're actively looking for right now? I was previously under the impression that you wanted to achieve your strategic targets before doing deals. I just want to understand the timing and what you meant with that comment.
Yeah. As I said, don't expect that we are closing any deal within the next two, three, four months. What I said is, 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. We feel that we could really make a difference during the last one and a half years. If we 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 have a big impact and which could really fit to the group. 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 10 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.
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. 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. The first one is a clarification question for Stefan. You mentioned that you're in the final stages of negotiation with potential buyers for the divestments of the business. At the same time, there are some COVID-19 related hurdles, including the refinancing of a potential deal by the bank. Could you clarify whether the divestment of the EUR 200 million, EUR 300 million 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.
We will not be able to manage and disinvest still this year, EUR 200 million or EUR 300 million turnover. We might end up in a three-digit number at the end of the year. Also here is 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.
There is no change with regards to your intention to sell it?
No.
Keep it on board?
No. There is no change in intention.
The second question is for Marcus, more big picture one, qualitatively. When we think about the capital markets day presentation and all these cost-saving potentials that you envisage now throwing in the COVID-19 situation, has there been any changes with regards to the timeline and the magnitude of the savings? That would be the part number one. Secondly, as we have moved along the timeline, 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 could tell us at this stage with regards to total savings on the upper end? Thank you.
Savings-wise, timeline, I would say, is such a situation with COVID-19. It 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. That's most important. It's really getting the right mindset into the company. In that sense, such a situation is, as a matter of fact, helpful in achieving the savings. There has been no change in volume. 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. 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.
Yeah. We're looking forward to some more elaboration on that. Maybe on the first part, when you said much faster reigning in the savings, what timeframe do you have in mind for much faster?
There's no new timeframe which we give out. 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. If the order intake states that it is great, we are going to have better EBITDA. If the markets would deteriorate further as a potential, we need to have the savings in as quickly as possible anyway. As I said, we're running as fast as we can right now to bring the savings in. As I said, also, it's helpful that there's the right mindset with that. The sense of urgency is everywhere.
Thanks for that, Marcus.
Thank you. One last question comes from the line, Jörg-André Finke. Please go ahead from HSBC.
Yes, just to follow up remainings. The first one was the very quick one on the tax rate, which has gone up. Should we expect 30% to be the tax rate also going into 2021?
Until 2021 it could be a bit lower. Actually, we are looking right now at more than around 28% approximately for 2021. This year it's 30%. It will depend on actually where our earnings going to be next year. We do not expect anything higher than 30%. Perhaps that's a little bit downward potential, down to like 28% for next year. We need to see where the earnings will be then.
Okay, very clear. The second question is just a follow up to your comments on 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, as we see nowadays for the moment, the large project activity is somewhat stalling.
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%-14% without a strong order intake of big projects with a lot of advanced payments. If we can get that of course very helpful and it expedites our net working capital reduction, of course, the magnitude would be higher. As I said, with the net working capital project in place and the new processes, we are able to manage actually within the range of 12%-14%. Depending on advanced payments, you'll be more at the lower end or at the high end. For this year, we feel comfortable with less than 14% already.
Okay. Very clear. Thank you.
There is one more question at this time. For our closing remarks, please go ahead, Stefan.
Yes. Thank you. I would like to thank 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, in the Q2, I 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. All 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. The big question mark remains the COVID situation.
It is a very volatile period of time, 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. The situation will remain very volatile. Be careful, stay healthy, and talk to you next time. Thanks.
Thank you. That does conclude our conference today. Thank you all for participating. You may all disconnect. Stay safe.