Earnings Call: Q1 2020

May 15, 2020

Ladies and gentlemen, thank you for holding, and welcome to the GEA Group First Quarter twenty twenty Conference Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer I must advise you that this conference is being recorded today. And I would now like to hand the conference over to your host, Oliva Lukenbach, Head of Investor Relations. Please go ahead, sir. Yes. Thank you very much. Good afternoon, ladies and gentlemen, and thank you for joining us today for our first quarter twenty twenty conference call. With me on the call today are Stefan Klebert, our CEO and Markus Ketter, our CFO. Stefan will begin today's call with the highlights of the first quarter twenty twenty and our measures in light of the pandemic crisis. Markus will then cover the business and financial review before Stefan takes over again for the outlook 2020 and our priorities. Afterwards, we will open the call up for the Q and A session. Let me start by drawing your attention to the cautionary language that is included in our safe harbor statement as in the material that we have distributed today. And with that, I will hand it over to you, Stefan. Thank you, Oliver, and good afternoon, ladies and gentlemen. It's my pleasure to welcome you to our conference call. I hope you and your families are doing well in this extraordinary time. Considering the current pandemic crisis and economic situation, I'm pleased to say we are more than happy with this very good start into a very challenging fiscal year 2020. And I'm sure that part of this strong performance is also due to our new organizational structure by giving our five divisions full P and L responsibility and having brought back entrepreneurship to many business levels at GEA. Let me focus on a few highlights. Order intake strongly increased by 16% to €1,380,000,000 benefiting from five large orders amounting to €140,000,000 Sales also grew and was up 3.5% to almost €1,100,000,000 and the book to bill ratio improved from 1.12 to 1.26. Our EBITDA before restructuring measures increased even by 40.7% to €105,000,000 This strong performance was driven by four out of our five divisions. In addition, we have improved our ROCE by 30 basis points to 12.3% and turned our net debt position of €155,000,000 a year ago into a net cash position of €10,000,000 this quarter. Currently, there is especially one topic top of our mind, this is COVID-nineteen. The current pandemic crisis is unprecedented and affecting all of us, both personally and professionally. We already addressed major concerns during our mid March conference call. However, nobody at that time could foresee a global pandemic with such huge impact on the global economy. And there's a large impact on societies and individuals as well. For us at GEA, the health and safety of our more than 18,000 employees was and still is our highest priority. And I'm happy to say that only a low double digit number of our employees was infected by COVID-nineteen, and the vast majority has already recovered in the meantime. This is a result of the strong efforts of our global crisis management team and the country teams we put in place already mid January and of our employees that have been very disciplined in complying with hygiene and social distancing requirements. We have also been able to capitalize on our learnings in China for our business in the rest of the world with regards to how to best cope with the corona crisis. In addition, we have implemented a dashboard that provides the management team with all important information to steer our company safely through these difficult times. It starts with an overview of our employees, how many are infected and how many already recovered, how many are working in the office, at customer site or from home, how many are not working. We also know that today, all our sites are running, our supply chain overall is secured, and we know that air freight rates have increased partly significantly. These are just a few examples. In a nutshell, the dashboard allows us to manage COVID-nineteen crisis on a daily basis in a very professional manner because we have the full picture 20 fourseven, and this is probably state of the art to manage COVID-nineteen and gives us the opportunity to react quickly if needed. We very often get the question how many of our factories are affected by COVID-nineteen and are therefore offline. We are very happy that most of our factories were completely unaffected during the last month. And on the chart, you can see the uptime based on weighted working hours of our factories since the beginning of 2020. In January, we started at 100% and reached the lowest level in February and March with 90%. Since then, it recovered to 93% in April and 97% is expected in May, month off date as today. So the decline is explained mainly by the factory closures due to COVID-nineteen, but the impact was very limited, and we are now almost fully operational again. With that, I hand it over to Markus to Thank you, Stefan, and also warm welcome to, from my side, Dear Group's strong top and bottom line performance. Stefan has already spoken about the excellent start we had into fiscal. Euros 1,380,000,000.00 was the highest we ever had in the first quarter since 2044, 34.3% of total revenues in comparison to 32.7% in Q1 twenty nineteen. On the strong development of EBITDA before restructuring measures, I want to share some more details with you on the next slide. All but one division contributed to strong EBITDA improvement. There are three things I want to bring to your attention. First, the improvement was broad based. That means all but one division contributed to the strong increase. Second, a major part of the improvement was gross profit driven. However, it also benefited from the missing charge of €10,000,000 for the backdrop review in our Liquid Powder Technologies division last year's Q1. And third, we had to digest negative FX effects of, in total, euros 6,000,000, nearly all coming from transactions in comparison to Q1 twenty nineteen. In order to enhance transparency, we show positive special items of, in total, euros 13,000,000, with the majority coming from the backdrop review I've just mentioned and the negative FX impact of €6,000,000 separately. Therefore, we showed underlying operating improvement of €23,000,000 Let me now turn to the division, starting with Separation and Flow Technologies. The division had a good start with order intake, sales and EBITDA before restructuring measures increased. Order intake was driven by all three business units. Sales was weaker in China because of COVID-nineteen. However, that decline was more than compensated by strong development in North America. On the EBITDA side, negative effects from temporary factory closings in China were more than offset by better developments in other regions. Now let's go to liquid and powder technologies. LPT increased its order intake significantly by more than 38% to €566,000,000 This includes five large orders with a total volume of more than €140,000,000 Sales showed strong growth in North America as the service share improved by two fifty basis points from 19.7% to 22.2%. EBITDA before restructuring measures turned positive. Q1 in twenty nineteen was burdened by a €10,000,000 charge that was booked related to the backlog review. Let me now talk about Food Healthcare Technologies. You might all have wondered about the more mixed development of our FHT division despite its strong presence in relatively resilient markets. There are some reasons for that. First of all, the order intake comparison does look odd because last year's Q1 included a relatively high volume of large orders between EUR 5,000,000 and EUR 15,000,000 in our Pharma and Healthcare business unit. Without Pharma and Healthcare, order intake would be above prior year. Second, on the sales side, good growth in Asia Pacific despite COVID-nineteen was not enough to compensate for declines in North America and parts of Europe, mainly related to large orders in prior year. In this context, I want to remind you on our Italian manufacturing cluster that suffered from the COVID-nineteen situation. Third, food has seen customers rapidly shifting from restaurants to retail, and retail upside did not compensate for restaurant drop. In addition, pharma did not participate from COVID-nineteen yet as this will depend on the final vaccine type and the upscaling technology. And last, FHT has a much higher complexity in comparison to the other four divisions. That means the implementation of our strategic measures to grow top and bottom line might take a bit longer compared to the other businesses. Moving to Chart 13. Overall, Pharm Technologies showed a very solid order intake of plus 9.2%, driven by demand for automated milking equipment, especially in Japan and North America. Sales suffered from a lower order backlog at the 2020. However, that was almost compensated by a strong service business as can be seen from the service sales share that increased from 46.7% to even 51.1%. EBITDA before restructuring benefited from a better mix within the new machine business, but also from a higher service share. That gets me to our fifth business. Our Refrigeration Technologies division showed an excellent development across the board. Order intake was up almost 20% with strong growth across most parts of Europe and a very solid growth across all categories of order sizes. On the sales side, we saw solid growth in the DACH and Eastern Europe region, and the service business also showed a good growth of almost 8%. However, the service share decreased from 37.1% last year to 35.2% this year, but only due to the stronger growth of the new machines business. EBITDA before restructuring more than doubled, driven by the strong top line performance. Let's continue with Chart 15, net working capital. In Q1, we have seen the usual seasonal pattern versus Q4 last year. However, we were still able to reduce the net working capital over sales ratio from 17.2% to 14.6% year over year. This represents the lowest level in a Q1 since Q1 twenty sixteen. From a divisional point of view, especially liquid and powder, as well as separation and flow contributed to that result. The improvement was driven by a reduction of inventories as well as trade receivables. However, the strongest contributor were net contract assets, which reduced to higher advanced payments. This improvement is a clear result of our strong focus on efficient working capital management, which we initiated in August. Despite COVID-nineteen, we strive for a networking over sales ratio of below 14% at year end, and we stick to our target corridor of 12% to 14% by 2022. Top of mind again in these difficult times is the topic of cash generation. Therefore, I have installed a liquidity office with weekly cash as king calls with our divisional and regional CFOs. That gives us the right focus on cash generation in these difficult and challenging times. Another key takeaway from this chart is that we have a net cash position. The €10,000,000 net cash is not far below the €28,000,000 we had at year end 2019. Before I hand over 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 a total committed lines of more than €1,100,000,000 of which we have only utilized €320,000,000 That means we have a very sufficient financial headroom of over €800,000,000 in credit lines in addition to cash of €330,000,000 I still can repeat what I said in the past calls. GEA is solidly funded on a diversified financing structure without any liquidity challenges. With that, I hand back to Stefan. Thank you very much, Markus. Let me now come to our outlook for the fiscal year 2020 and our key priorities. I want to start and share with you the latest value added output forecast for our customer industries in 2020 based on the latest data from Oxford Economics. While food and beverage to relatively stable markets in normal times are expected to be down in Q1 twenty twenty, the forecast for the full year suggests some improvement in the coming quarters. In contrast, the numbers for Pharma and Chemicals suggest a further downturn. We believe that the expectations for 2020 still carry a high risk of uncertainty. Nevertheless, we had already included some of this uncertainty in our outlook published mid March, and I will now share with you some information why we still feel comfortable with our financial outlook for 2020. Let me start with our order intake situation. First, we not only had a very good first quarter, but we have also seen a relatively strong April in terms of order intake. Order intake was only down 2% versus April 2019 despite corona, despite the peak of corona, I would say, which we had during that time in Europe or all over the world, with some shutdowns we had and forest holidays for Easter. That gives us a good buffer for the more difficult months that are ahead of us. On Chart 21, you see three core pillars, which we have identified and on which we will focus in the months to come. This will help us to mitigate the impact of the current corona crisis. Pillar number one, keeping focus on order intake and sales. Our sales forces increased efforts towards the customers. That means being in contact more often via phone and web conferences as traveling remains difficult in many countries. In this context, we can also count on long term relationships with most of our customers, which helps a lot in generating business in this difficult environment. With regards to the execution of our service business, we are also looking for smart solutions like our remote eyewear and have intensified already our digital offers during the past weeks. In addition, we offer to visit the customer site at night or during the weekend. Pillar number two, managing costs. On top of the expected savings from our headcount reduction program and on our purchasing improvement activities, we have identified further areas to reduce costs. On the one side, there are windfall profits from reduced travel activities due to the global travel restrictions. And on the other side, we have decided to partly abandon salary increases and ask the entire organization to focus on a general tighter cost control. These additional measures can help us to cut costs by a low to mid double digit million euro number. And pillar number three is securing cash. As Markus just explained, we have a very strong focus on working capital management and cash collection. Cash is king. In addition, we have access to liquidity of almost EUR 1,100,000,000.0, if needed. Fortunately, this is not the case right now, as you can see from our net liquidity position end of Q1. That brings me to our guidance, which is unchanged and which I confirm because of all the reasons I have just talked about. We expect sales to be slightly down versus last year's figures of €4,880,000,000 and EBITDA before restructuring measures to be in a range of €430,000,000 to €480,000,000 For ROCE before restructuring measures, we forecast a number between 911%. Before I close with the 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. We hope that cross border travel restriction will disappear soon. Second, we will push to realize the saving from our new global procurement and supply chain organization. And third, we will continue to reduce our workforce with our Headcount 800 program, as I have just mentioned further, by in total at least 800 employees by the 2020. Fourth, we will continue to increase our operational efficiency. And fifth, we will divest the earmarked low margin businesses to focus our efforts in the remaining operations, and we are very optimistic that we can close some of the debt investments already in the first half year. 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 August 12 for the release of our Q2 numbers. You might miss our divisional strategy day, which we had planned for June 29 in London. In consideration of the ongoing pandemic, the related health risks and travel uncertainty, it is unlikely that we can host a divisional strategy day with your physical presence, and hence, we have decided to postpone the event. However, even without a divisional strategy day, we will continue to update you on relevant topics regarding the strategy of our divisions. The exact format and timing of these updates is still under consideration. We will keep you posted. With that, I hand it back to Oliver for the Q and A session. Thank you. Yes. Thank you very much, Stefan and Markus. And back to you, operator, please open up the lines for the Q and A. Thank you, sir. And your first question comes from the line of Klas Bergelind of Citi. Please go ahead. Your line is open. Hi, it's Bjorf Van den Meierckhaus with Klas from Citi. Have three questions, please. Firstly, it seems like large orders are also holding up in April. Large orders over two quarters now at previous peak levels and always are at risk in periods of macro uncertainty. They sometimes get pushed to the right. Obviously, April is holding up. But how about tendering right now, the quotations? Are they also stable, Stefan? Or do you see any change there, any weakness? And by region, please. I will start there. Okay. Thank you, Glass. That's a very good question. We just finished our weekly corona call with our division heads and regional heads. And yes, definitely, the coming months will be more challenging, will be also more challenging in terms of order intake. But we are still quite optimistic, let's say, having having in mind the overall situation. So we see, of course, also customers postponing order placement. That's especially valid when we look to brewery business, for instance, because breweries are suffering a lot under this crisis. But on the other hand, we also see new projects coming in and kicking in. So it's a kind of unsure environment, I would say. Customers are also very cautious, but we have still an interesting order pipeline. And we feel quite optimistic that we can get a decent order intake also in the following months. Okay. Very clear. Very good. When it comes to my second one is on services and for you, Markus. Solid growth here, and this has recently been driven half by pricing. Did you hike prices more this time? Or is that the volume development that we see on the Service side? And I can see on Slide 32 that growth in Services is also visible in Liquid and Powder. And part of the strategy there is to increase the share of Services in LPT. Could be more difficult perhaps versus separation and flow as you have more project content, but still Service growth is up. So could you talk about pricing and then also about the drivers behind the service growth in LVP? Thanks LPT. Yes. For prices, actually, we didn't do anything right now. Especially in this environment, we cannot hike prices. So prices were pretty stable actually there. In LPT, it's a stronger focus than in the past simply on services. We put that focus actually in all of our divisions, very strong focus on service. That's why we also announced, from management reporting, really tracking also profitability of service, houses of machinery and equipment. And that was it. Actually, there was nothing special in Q1 in regards to pricing or anything else right now. That's good. My final one is on RT and Feet. So pretty solid margins here, and you said that this was driven by higher gross profit. I can see why LPT improved, EUR 10,000,000 swing from no backlog review and from cost savings kicking in. But I want to understand the gross margin in RT and FP. Was this the procurement savings kicking in or something else driving this? Is net pricing getting better as you push decentralization further? Are you managing to deliver more value now to your customers? I think that in RT, actually, we saw very much mainly it was volume driven there. And most of the parts were volume driven. And the then we also were able to reduce overhead expenses in RT. In LPT, it's a better pricing we had in our order backlog and also better execution than in the past. Thank you. Thank you. And your next question comes from the line of Lucie Carey of Morgan Stanley. Please go ahead. Your line is open. Hi, good afternoon, gentlemen, and thanks for taking my question. I have three questions. I will go one at a time. Thank you very much for the color on current trading for April on the orders. But I guess my concern is whether you could actually comment on what you are seeing more in terms of sales because I'm curious to know whether you are seeing any postponement or cancellation in terms of previous orders, which are maybe not materializing. And if you could help us maybe to give us some sensitivities in terms of operating deleveraging if you were going to miss out on some of the terms? Yes, Lucy, let me say, first of all, of course, we don't want to disclose monthly numbers in the future, though. It's an extraordinary situation where we thought it is very helpful for you to see that we are continuing quite stable. When it is about cancellation of orders, I can say that we are measuring that. I have a clear picture of how many projects are postponed from customers or delayed from our side, how many are canceled. But I can tell you that so far, this is not a significant impact on our numbers. Okay. You very much. The second question I had, maybe if we could go back to Food and Pharma. Maybe it's a bit of an inputal question, but you were mentioning that from your standpoint, business is in benefit in Food especially because restaurants are closed, but retail does not necessarily compensate that. I'm not really sure I fully understand this because whether people eat at home or at the restaurant, they still eat food, which I think is why you are supplying equipment for food processing. So I guess my question is, we've heard relatively positive comments around demand in food and pharma from other companies. And I'm just trying to understand maybe what's different in your mix that we wouldn't be seeing this for you guys specifically. Okay. Understood. So I mean, let's make some examples. For instance, we have customers who are producing cheese only for fast food hamburger chains. These customers are suffering significantly because all the fast food chains are closed down. On the other hand, we have customers producing pizzas. They have extraordinary order intake, and they are really booming because people all over the world are buying food. And of course, people always need to eat and drink. But if they go to a restaurant, normally, the restaurants are using more fresh food. They are buying vegetables or fresh meat and fish and prepare lunches and dinners out of that. While when people eat at home, normally, they go to a supermarket, they buy more pasta, frozen food. And this is what we see on all our customers who are delivering and serving to supermarkets. So this is the positive impact. On the other hand, as I said before, beverages are suffering, especially beer, because if restaurants, if bars, pubs, discotakes are all closed, the consumption of beer is less. Also, you think about all these parties, which we see also in Germany or in Bavaria during summer times with all these big beer parties. All this beer on Oktoberfest, a very typical example, so the beer which will not be drunk at the Oktoberfest this year, nobody will drink this beer. They will simply need to produce less than all the years before. So it depends very much on where you look at. So it's balancing, and we also see customers really having no idea how they should supply their demand. And we have other customers who are suffering. All in all, it's, for us, quite balanced. Sorry. And on the pharma side, maybe? Yes. Pharma is we you might expect that in a medical crisis, in a crisis like the coronavirus, that there is a big and strong demand for pharma. This is not yet the case. I mean, this is also what we can see on the Oxford economic numbers we showed you here in the presentation. It might come later, but it's not that it is boosting. It's also because there is no vaccine available at the moment. We already got some requests from companies who are active in the Wax Sign business, what kind of technology we have to scale it up. But it's all theory as long as no Wax Sign is developed. Okay. Thank you very much. My third question was actually on the order momentum in liquid and powder because that was very strong in the first quarter, even though the comp base you had from last year was already quite elevated and you've had several large orders. When you think about this industry, because historically, we had tended to see a period of very significant installation. And then for a while, there was kind of nothing because all of that capacity was being absorbed. So when you are thinking of your pipeline in Liquid and Powder, are you still confident that we can maintain a fairly solid pace? Or you expect some form of normalization? I mean the Q1 was definitely an extraordinary quarter for Liquid and Powder. You cannot expect that this will continue for the next three quarters because these were really big and huge orders we got. But it is on the other hand, what we can see is that also the market in the milking business, in the dairy processing business is picking up and that we also get, therefore, interesting orders. And we are very, very optimistic that we can also process these orders with a good margin at the end. Thank you. And just maybe a last question, if I may, to Markus quickly. Are you able to indicate to us how much savings you have accrued in the quarter? And how we should think about the overall savings for the full year? You mean the headcount 800,000,000 reduction savings? Basically, I'm just yes, I was just asking if you could give us a rough number of how much savings in EUR 1,000,000 did you benefit from in the quarter? And if you think about the full year, which what is the targeted savings number? Because I don't know if it has changed versus your initial plan maybe because of COVID. So I just want to check if we have the right number on hand. Yes. Well, we gave the Capital Markets different savings numbers, right? I said we said we're going to save on purchasing €26,000,000 We said that we're going to save in regards to the non tariff salary increases another €20,000,000 there. So all the numbers we gave out are still valid, and that's why we are still keeping up our guidance. And the operating business is a bit weaker than what we had what we saw last year. But we still think that we are on track with all the savings we told you. We have different buckets, you remember that one. It's not just one number, we have different buckets. Okay. Thank you very much. Thank you. And your next question comes from the line of Sven Weier of UBS. Please go ahead. Your line is open. Yes. Good afternoon. Thanks for taking my questions. The first one is also on the LPT order intake, and you already said you landed five dairy projects. I mean is it already kind of the success of your new organization that is helping you there? Because if I look at your competitors or like SP X flow quite weak in the quarter, seem to have landed none. So it's quite outstanding. And that's why I was wondering if you already see here the benefits of the new structure, what's really driving that? That's the first one. Okay. Thank you, Sven. First, we had five large orders, but only three of them were dairy orders. So one is one was a beverage and one was a chemical project. So not all five were based on dairy. And yes, we see a lot of good impacts. We believe and we are convinced from the new organization. It really, really makes a difference. You know that we are also managing the company with much smaller Board and with the global executive committee, where we have all the operational top management at the same desk. We meet once a month with them. We have weekly calls. And this is a very good way to really work together. We are becoming a really good team meanwhile here. And this is, I definitely would say, also a benefit of the new organization that we are working better and faster together, that we are having a focus on the right things, that we care about terms and conditions, which was which were not in the focus in the past, which you can see a net working capital impact and so on, yes. Okay. And then the other question I had, obviously, you gave also some forward looking statements, and it sounds like your pipeline is still relatively okay. And obviously, if I compare that with the financial crisis where your order intake, excluding the heat exchanger business, was also down almost 20%. And I guess some people would argue that this crisis is a bit worse. How is it that your clients behave so differently this time? Because in other industries and even in other food segments, we see them behaving the same. So why is it that your clients are behaving so differently this time? Or are you simply very late cycle in that sense? Yes. First of all, I would say it's because we are all also our customers are in a quite safe and stable business model. So I always say as long as we have human beings on that earth who need to eat and drink, GEA is a system relevant organization and also our customers. So this is something where we feel that there is simply a need for our products. And I mean if you look at the numbers of the competitors, which we also see from the first quarter, I also can say, I think, and we can say that our performance was quite good. It might also be that we are also performing here better than the overall market in some segments. Okay. And then the last question I just had, because you were mentioning your factories are almost back to 100%. How is it going to be on your deliveries of the backlog in Q2? I mean, are your clients taking delivery of the equipment? Or should we expect some delays of the backlog into Q3 until everything is open again? Yes. Good question. We have, of course, also examples where customers are asking us to delay deliveries because they have no need at the moment or they want to postpone it somehow. That's what we also can see. This is an impact, yes. But the biggest risk, I would say, for us in terms of generating sales out of backlog for the rest of the year is twofold. The first one is when our assembly teams, our installment people, our service technicians able to travel around the world. This is very important so that we can really execute the project that we can create POC. And the second thing is that we hopefully don't get a second peak or even a third peak, and therefore, no more lockdowns of factories. But these are the two things I would say, which will determine our sales for this year. It will not so much depend on the order backlog. I mean, four months are gone out of 12. The backlog is strong. The order intake was excellent. So we have a workload almost until Christmas. And it's only the question, are we able to execute? Can people travel to sites? Can we run our operations? And if so, we are also very optimistic to achieve the numbers we are having out with our guidance. If there will come anything like a shutdown, then it might be a different thing. But nobody knows. Okay. Thank you, Stefan, and well done on the quarter. Thank you, Sven. Thank you. And your next question comes from the line of Sebastian I'm sorry, the line just disconnected. Your next question comes from Denise Molina of Morningstar. Please go ahead. Thank you for taking my question. So I wanted to follow-up on the dairy processing orders that you got. I think you mentioned that you might be growing faster than the market and that the margins were better on those orders. So I just wanted to understand more about that if you think that you've taken a bit of share and if it has anything to do with SP Expo deciding that it was last year that they didn't want do any more project business in dairy. So yes, if you could just address like potential market share gains and also why the margins improved. Yes. Not such an easy question, let's say. I mean when I look at these big orders we got, we got these orders or the majority of these orders because we really had good teams, strong teams in developing excellent solutions for these customers. I was also in some of these projects personally involved. And we also have sometimes in some of these projects really outstanding technology, which our competitors could not deliver. And therefore, it also was possible to close the deals for us and also achieve good margins. Were these related to new technologies or existing ones? More existing ones in that case, yes. Okay. And can I just follow-up with two other questions? One is related to as you think about the other side of this and maybe you're consulting with Oxford Economics or doing some of your own modeling, If you think about the long term growth potential from emerging markets versus developed markets in terms of processing food, if we have a large portion of emerging market populations that don't make it to the middle class as soon as we thought they were because of these lockdowns. How do you think that affects your end market demand? Do you think that there's going to be more reliance on local food processors that might offer that processed food that's more affordable to the locals versus the big sort of Western, maybe more premium food processors? And do you think that you're positioned right now to sort of to help and support the local food processors more? Hard question, Denise. Very, very difficult, let's say, to foresee. We only can say I mean, all the megatrends we know and we see in terms of urbanization, for instance, growing middle classes, larger cities, growing population are all trends who are kicking in, in our business model. This is how I would like to comment your question. Okay. Thank you very much. You're welcome. Thank you. And your next question comes from the line of Felicita Bismarck of Deutsche Bank. Please go ahead. Your line is open. Yes. Thank you very much. My first question would be on your service business, which really grow quite impressively again. So you mentioned that there was a little bit of like a focus thing that you employed some more people, I think. How long do you think this growth rate is going to continue? Or is this going to level off at some point, what do you think? Yes. I mean when we look at our different divisions or different business units, we see different shares of service. I mean it starts in some businesses with 10% only, goes up to 50%. And the job for us and the task for the management is now to increase the share in those business units where we believe that the share is still too low. And this is also the reason why in the new organization, we have a so called CSO, a Chief Service Officer, implemented in the top management team of each division. This is also a topic in our monthly review meetings that we expect every division to come up with specific actions to increase service business. So I think we can still, for the time being, increase the share of the service business. But at the end, I mean, it's also important that we grow in new installations. And it is, let's say, more important that we grow in both directions because increasing service share would be easy by simply decreasing new installations. But this is not what we want to do, of course. Okay. Thanks very much. The second question I have is coming back to Sven's question, actually. I mean, historically, your order intake has always reacted a little bit with a delay to macro changes. Do you expect to see this effect this time around as well? And do we is it potentially going to be an impact in 2020 numbers rather than in 2020 so this year rather next year further rather than this year? So how do you expect this developing to continue? Really. I mean you should not expect order intake in the second quarter like you saw in the first quarter. That would be very, very unlikely. And it's like I said before, we are still quite optimistic. But of course, we see customers postponing project. And when a customer is postponing a project, it also might be that two months later, he is canceling the project. So it's a very volatile situation. And we are expecting that the next six months will be more challenging for us in terms of turnover, in terms of order intake also compared to the first quarter because other than the first quarter, the COVID-nineteen impact was still quite low. And in terms of what you mentioned, the sales efforts that have been increased, is pricing an element of that as well? I mean, of course, we do always everything to increase prices wherever possible. But we are also seeing that in some business units, we also added in a call in the morning, there is already a kind of price aggressivity, what we can see because customers are also look competitors are also looking to load their factories, yes? And that's how it is, yes. Okay. And last question would be in your separation and flow business, you had an impact from COVID in the first couple of months. Do you see now a strong recovery in China? Or is that rather flat ish? I mean China is back to normal. This is what we can say. I also a call with our Head of China beginning of the week, and he told me I asked him how is life in Shanghai. And he said, we are all back to normal. Restaurants are fully packed. People go out. It's even more difficult than before to get a table in a restaurant. There is no social distancing. People are sitting together and celebrating like there was never ever any issue with COVID-nineteen. Yes. Question is if that's good or bad in terms of a second wave. But I mean, in terms of separation and flow, is that a V shaped recovery you're seeing in China? Or is it rather U or else? In China, we can see that it really picked up very, very quickly and very fast. And if you look at the numbers, people infected in China and you compare that with the total population, you can say that we, in Europe or in The U. S, have much, much bigger impact on the COVID-nineteen than China ever had. Okay. Thank you very much. You're welcome. Thank you. And your next question comes from the line of Sebastian Grove of Commerzbank. Please go ahead. Your line is open. Yes. Good afternoon, gentlemen. Three questions also from my side. The first one is around service and the comment that you made before that you want to grow the right areas within service. Apart from the fact that the service growth was 8%, can you just make us understand if there was sort of a pre buying because of the corona situation that some of your customers just want to make sure that they have the right spare parts on stock, for instance? And talking about spare parts, has this been really the key source for this very strong growth in Service in quarter one? That's the first question. The second one is around the order intake once more, and sorry for poking on this one. And here, I'm interested in the gross margin trends that you have seen in the order intake and if there has been any meaningful change because of the mix that you mentioned also in on versus off trade, I. E, supermarkets versus restaurants. So that has influenced the overall margin quality for the recently taken orders? And sorry, for that quick follow-up on the procurement savings, Markus. You mentioned the €26,000,000 for the fiscal twenty twenty as a whole. Has there been any impact already in the first quarter? You said that you're on track, but would it be fair to say it is sort of a linear distribution? And very last one then around portfolio. And you mentioned in your prepared remarks that you're confident to close some divestments during this fiscal year. Is this going beyond the earlier announced BOC business that you had earmarked for sale in the year? And I think you mentioned or talked about it in October. Yes, that would be my three areas of questions for service orders and the portfolio. Okay. Thank you, Sebastian. I'll start with the service question over the parts. Yes, there are some customers, of course, who preordered spare parts. Is this now the driver for the increase of the service? I would say no. Because on the other hand, what we also can see or what we did see that it was almost impossible for our service technicians to enter customer sites. And we expect now in the next months and weeks that these are jobs which can be done again because, at least in Europe, the lockdowns are going away more and more. And then we also think and believe that we can send out more service technicians and therefore also increase on that side. So if there was a kind of overswing for parts, then we are very optimistic that in the second quarter, can balance that with having more people out in the field. Sebastian, to your three further questions, order intake. I mean one is to see the when COVID-nineteen really came. And that was early in China, and there were some issues actually there when they closed Wuhan and also some of our plants there. But besides that, actually, everyone hit outside of China really like March, perhaps a little bit earlier. So all the order intake, which came in, in January, February and the first two weeks in March, had nothing to do with COVID. And you need to see that when we start negotiating with the customer, that's weeks, sometimes months before. So that's the order intake you are seeing. So there is basically no effect on March or anything in the in Q1. Then what happens actually when COVID-nineteen hit, of course, some customers started to postpone prospect, but we did see this very, very little. That's why we had still a great order intake. What you see then in service as an immediate effect is that sometimes we are not able to go to the sites any longer because they didn't want to see any nonemployees there. Some of them, as Stephane said, ordered some more spare parts and just to have them on stock because they were producing all the time. And then there were other customers there, which actually were affected there, even though they were in the food market. So there's very little effect in the order intake for in Q1. And now actually, customers are sorting out if they're on the good or on the bad part of COVID-nineteen. And as Stephane said earlier, in Q2, we will see then actually how that plays out with our customers. Then you ask procurement. No, it's not going to be linear. I wish it were. Controller always want to have it linear, but it's going to be more back loaded. When I said that we are on track, that we are putting the measures in, we have some new management in purchasing below my colleague our colleague, Johannes. They are putting the right measures in there. They're changing the organization. So that's why I'm saying we are on track. We see progress there, but the savings will be backloaded in this year. Your last question, portfolio here, divestment BOC. We said that it's going to be around €200,000,000 perhaps up to €300,000,000 That's what we are looking at right now. Of course, we do an internal screening also, which companies are a fit. And we might come out actually with additional divestiture. But that's because we are always being asked, is it going to be a division? No. I say clearly, it's not going to be a division, but we are screening each operating legal entities still, of course. But for now, it's between 200,000,000 and €300,000,000 what we announced earlier. And the 200 to €300,000,000 that is really what you would also think is realistic to be divested by the end? Well, we still strive to do this because we say that we, of course, also need to clean up our company portfolio. The M and A divestment processes are still ongoing. But as you can imagine, it will depend on if interested party are willing to pay with equity or that the capital markets are opening debt markets are opening up again to get a financing. So right now, everything is still progressing. But of course, in the next week, it will depend also on the debt capital markets. Makes sense. Can you remind us of the total profitability or loss profile of the affected two hundred to three hundred million euros of sales? Or would it be fair to say breakeven? Or is it worse than that? It's EBITDA between 02%, as you always said. That's what it is. So very minimal profitability. Yes. And then the very last one, I think, asked earlier on, on the mix within the current order intake that you have seen. Have you seen any meaningful really change that there's worse than expected application portfolio on the recent orders taken, etcetera? And that is more than a question for April, obviously, and not so much on Q1. No. April, as we showed you, was also a good order intake a month. No, we haven't seen that yet. All right. Fine. Thank you so much. Thanks. Thank you. And your next question comes from the line of Jorgen Drefink of HSBC. Please go ahead. Yes. Thanks for taking my questions. I take them one by one, if I may. The first one relates to the outlook for dairy farming, especially in The U. S. It seems that quite some milk surplus is accumulating, not least because of the COVID-nineteen impact on coffee shops, etcetera. So maybe you can comment on the outlook for farm technologies or dairy farming generally. Okay. I'm happy to do so, Joerg, Andre. I mean the markets in U. S. Will not help us, let's say, like that because we also see milk price going down. But on the other hand, I would say if you look at our performance during the last two to three years in especially in Automatic Milking System in The U. S. And Canada, we did not really perform. And this is what we definitely want to change, need to change, and we are also optimistic that we can change. And therefore, we are, in total, quite optimistic also to continue a good order intake in Canada and The U. S. In farm technology. But it will not come from the market. We have to do it by ourselves. Okay. Thank you. And the second question I have is on that announcement, I think you made yesterday, the cooperation with SAP. To which extent is that changing the initial plans you had on ERP streamlining, etcetera? Or is that just one step in the whole strategy? That's a big step in the whole strategy to have a partnership with SAP and to get full support for this big global SAP program we have in front of us, which, as we announced on Capital Markets Day, will take until the 2025. So that's fully part of the strategy going forward. Okay. Very clear. And then coming back on the profitability on a second basis, especially with regard to Refrigeration Technologies, so with the strong Q1 margin, I think being at the upper end of what you planned in terms of midterm targets at your CMD despite the weaker seasonality in the first quarter. So maybe you can comment on sustainability here. And maybe generally, obviously, you have postponed this divisional strategy day, but have you planned to stick to those margin targets generally? Or were there any changes in the making? No. We are sticking to the margin targets actually we gave out for 2022. And you had a specific question in regards to RT, right? So I answered that earlier, actually. So we see volume driven. And in RT, we think actually that we don't have anything right now that we do not that we expect actually that it will fall down there. So it's right now, it's business which is getting more profitable. And my last question, maybe in that in the same context, but also on the remaining segments. In terms of seasonality, would you expect a similar seasonality in 2020 with regard to the last couple of years? Or has that significantly changed because of COVID? Well, without COVID, we would expect, of course, the same seasonality. With COVID now, we need to see actually how Q2 and how Q3 will be performing. Stephane already said that order intake in Q2 will not be as strong as probably not be as strong as in Q1. So next two quarters probably will be determined by COVID-nineteen more than by seasonality. Okay. And just very last one on CapEx, which was pretty low in the first quarter. You're still going for around 3% of revenues in terms of investment spending? Or is this changing as well because of the environment? Well, we will be, of course, careful with the with CapEx and really scrutinizing every project we get on the table if we really need to do this year. However, when you compare this with Q1 twenty nineteen, there was approximately €6,000,000 plus in Q1 where we finished plant construction manufacturing project in Q1 twenty nineteen. So that's why Q1 twenty twenty looks significantly lower than Q1 twenty nineteen. And then we saved a bit on CapEx in the first quarter, just to be careful, But there was no major decision or anything by us that we're going to change the direction. We're going to look very carefully at liquidity and the necessary CapEx also in the next two quarters. But in general, I would say we are still sticking to the target we gave out. Your next question comes from the line of Daniel of Yes. This is Daniel Klein from MainFirst. Thank you very much for taking my questions. I would start with Stefan. You reiterated the guidance for 2020. Maybe you can pinpoint to us which quarter you expect the trough performance for GEA. For most companies we cover, they're expecting the trough to be reached in the second quarter. If I look at the April order intake, it still upholds quite well. The outlook for the full year is down. First quarter was up. Do you think we see more stable ish Q2 and then the trough momentum in Q3? Or do you think you will follow similar to the peers that we are covering with the weak performance in the second quarter? That will be my first question. Thank you for your question, Daniel. Difficult to predict. I mean I always can only say nobody from us ever had a crisis like COVID-nineteen. It is very volatile, but we are very sure that we cannot repeat Q1 in Q2 and Q3. So I cannot tell you if Q3 will be more challenging than Q2 or vice versa. But if I would need to guess, I would say Q2 and Q3 might be the most challenging ones in this year because Q4 normally is always a very good one quarter for us as well. So yes, that's what I can say today. But if you ask me in six months, I know it better. Very clear. Thank you very much. Coming back to the short cycle dairy farming question, you commented on your targets to outperform the end market. But would you mind sharing your expectations with regards to the end market with us? I mean, we are in recession territory, which probably will have a negative impact on milk prices and hence for the P and L of dairy farmers, which is closely tied to the short cycle, especially service business consumables and so forth on your end. And again, what you think or what you see from current discussions with clients where the market might be heading? So again, the market and not so much bigger performance you already commented on. Yes. As I said, we don't expect an increase in milk price for the next months. We see milk price rather declining. And of course, this has always an impact on that business. We are very optimistic because we changed many, many things in Farm Technology. As you know, we have a completely new management there. We are also changing significantly our route to market right now. We have a completely different dealer system set up. We have much more power in the organization, I would say. And we did also many things quite not as good as we could have done, I would say, in that area. And therefore, I'm also quite optimistic that we can see a good development of PharmTechnology despite a nonfavorable market. Very clear. Two smaller ones for Markus, if I may. The first one on RT again and apologies for belaboring the point. Is there anything in Q1 twenty nineteen what was particular? I noticed the performance was the weakest in the entirety of 2019. The volume was the weakest as well. Is that the sole explanation? Or was there anything else? That is the first question. And the second one is, I believe I overheard that you mentioned divestments could be due in the first half. Is that correct? Or do you see the divestments also to be more back end loaded in the year? Just to be clear on that one. Thank you very much. Sure. So coming back to RT. So the major part by far is volume driven. Then as I said, overhead is down, and there was just a bit over €1,000,000 actually where we had a reversal of an accrual there. And that's basically it at Altice. So operating a much better performance, volume overdriven with just a slight recur reversal. Then divestment first half of the year. Well, it's already May. So I think first half of the year would be too optimistic for that. I think the earliest was probably Q3 to see this. It's as I said, it's a market for also for buyers if they need financing there. Very clear. Thank you very much. Okay. Great. Thank you. And your last question comes from the line of Sebastian Kurney of RBC Capital Markets. Please go ahead. Yes. Hi, gentlemen. We understand that there is no big pharma orders in Q1 and probably no big orders from the food processors. But what is the current negotiation? What are they sounding like that you have with the big food processors like Nestle and Danone and other big guys? Do you think there's already like a trend that you would see in Q2 and Q3? And how big is that going to be? Are we talking maybe a 5% change in the orders year on year or 10%? Or is it a much larger scale? That's question number one. And then on the factory availability, I understand that you have currently 97% availability. But what is the utilization of the plants that you have? I mean, do you run at one shift, at two shifts? How flexible are you there? And do you still see room for, let's say, capacity adjustments, so headcount cuts, incremental headcount cuts or in need of that. And the last question, just on the one offs. I only saw $13,000,000 in Q1. Do you feel comfortable with that as being the run rate for the rest of the year for one offs? Okay. Thank you, Sebastian. I'll start with the question of CapEx CapEx willingness to spend CapEx of our customers. Just let me remind you, it's not that large customers like Nestle or Danone, you mentioned, are so significant for us because what is and don't understand that wrong, please, but the biggest customer of GEA is contributing maximum 1% of our total order intake or sales. So this is not even if one huge even if our biggest customer would decide to spend nothing, it would not really impact GEA because it is it could be maximum 1% of the total business. So but when we talk to customers, we have not the feeling that they will cut CapEx significantly because they all don't see them in a structural crisis. I mean, it's different if you talk now to if you talk to any companies producing exhaust systems for combustion engines. They might have a systematic problem and, of course, stopping CapEx to this business. But our customers are producing food and beverages. And even the breweries who are suffering right now, I'm sure, will come back sooner or later. And therefore, we don't see a significant long term cut in CapEx from our customers. I wasn't implying the cut. I was implying the opposite, actually. Because the processed food that you sell through supermarkets, I mean, that business must be very strong. I would expect that the food processors have to react to that. Or you have a work from home trend globally, right? Cook more from home. They need more processed food now. The negotiation you have with the client? Yes, absolutely. I mean this is clearly what we also see. I mean if you look at our order intake in Food and Healthcare, it is dominated by the Pharma swing from last quarter to last year's quarter to this year's quarter. If you look at Food itself, we can see in some business unit very good trends, when it is about meat treatment, for instance, we can already see now that there are orders picking up. So this is definitely also something where we will see additional investments, yes. On the other question? The question yes, with the production adjustment, we are running our factories quite with a normal workload. Also, some of them in two shifts or three shifts where appropriate and necessary. And we have a lot of flexibility instruments to manage that. We have not only temps, we also have working our accounts, which we can adjust. We are also in negotiation for the big factories in Germany to extend that range. And we feel very optimistic that we can manage that without having negative impact on the cost structure. In regards to your question of the 13,000,000, this is not a run rate. This is actually what we did last year that we said there are special effects, which we consider nonoperating. However, they are part of our guidance because we only guide EBITDA before restructuring measures, and they are not restructuring measures. The major part of the €30,000,000 was the project accruals we had in Q1 twenty nineteen for the Solutions project. And then there were other also effects in there, which totaled then to €13,000,000 which we say, when you look at Q1 twenty thirteen, there were expenses in there, which were non operating. When you look at Q1 twenty twenty, there were also some in there. And all in all, it's the difference is EUR 30,000,000 year over year. And then, of course, the EUR 6,000,000 and FX. And that's why we said the difference in operating performance is not EUR 30,000,000, but it's actually minus EUR 30,000,000 plus the EUR 6,000,000 of FX, adding that back. And then we come to EUR 23,000,000. Did that answer your question? Yes, to a large extent. So to ask really blandly, what do I put for one of this year for you guys? No, Peter. There's a special one of those large numbers. Everyone still has large numbers, but I cut my numbers for one offs. What do you mean with large numbers? You cut your numbers. 50,000,000 plus for the year as one offs. It's currently the run rate in the market. No, that's not one offs for this So it's But okay. So this is so that's different. This is special items. This is not restructuring expenses. We had for this year, we also had restructuring expenses. They are outside of our guidance, yes? So you need to differentiate between these. This is part of our guidance. We just want to make clear where our operating performance is in the first quarter of the year. And we are saying there are special items in there which are not restructuring. And this is, in total, as a difference between these two quarters, is €13,000,000 It has nothing to do with onetime effects in that sense. Suggest to get into further detail here with Investor Relations, actually, offline to clarify this. But we have one time effect for restructuring, and then there are non restructuring effects. And these are the nonrestructuring effects, which we think do not reflect our operating performance, and that's why we are showing them here. And also Yes, yes. No, I understand. I understand. But for restructuring, you are well prepared for the year. That's the take from the conference call as well, right? You feel that given today's data on COVID and market, you feel in a decent position not to have major adjustments this year? Right now, we're following through on our restructuring plan, so we do not expect less. And COVID-nineteen, so far, is no reason that we should increase our restructuring efforts. Okay. It's very good. Thank you. This was your last question. I'll hand the floor back to Stefan Klebert for closing remarks. So thank you very much, everybody, for participating in our call. I'll try to summarize it in a nutshell. We had a very good start in a challenging year. First quarter was really good. We it gives us a certain tailwind for the remaining year. We are cautiously optimistic for the next quarters, but obviously, quarter two and quarter three will be more challenging than the first quarter. But we are also we believe that all our actions and measures we have in place will help us to come through this crisis quite good. Thank you for listening, and have a nice weekend, and stay healthy. Thanks, everyone. Thank you, gentlemen. That does conclude our conference for today. Thank you for participating, and you may now disconnect.