Financial Status and Targets CFO Dr. Helmut Schmale London, October 13, 2014 GEA Group Aktiengesellschaft
Disclaimer Forward-looking statements are based on our current assumptions and forecasts. These statements naturally entail risks and uncertainties, which may cause the actual results of operations, financial position or performance to diverge significantly from the estimates given here. Factors that could cause such a divergence include changes in the economic and business environment, fluctuations in exchange rates and interest rates, launches of competing products, poor acceptance of new products or services, and changes in business strategy. We are under no obligation to update forward-looking statements. Due to rounding, the sum of percentages of order intake and sales by region as well as by customer industry may vary from 100%. 2 GEA Capital Markets Day 2014 - Financial Status and Targets engineering for a better world
Agenda • Financial Targets for FY 2017 – FY 2020 1 • Capital Allocation 2 • Acquisition Criteria 3 • 4 Preliminary Key Figures Q3 2014 / Guidance FY 2014 3 GEA Capital Markets Day 2014 - Financial Status and Targets engineering for a better world
Financial Targets FY 2014 - 2020 CAGR Organic Sales Growth FY 2014 - FY 2020: 4% to 6% p.a. FY 2017 - 2020 Service to Sales Ratio: ~30% Operating EBIT-Margin 1 : 13% to 16% Working Capital to Sales Ratio: 10% to 12% Capex to Sales Ratio: 1.5% to 2.0% Cash Flow Driver Margin 1 : 12% to 15% ROCE 1 : 20% to 25% Net Effective Tax Rate: 24% 1 For the corresponding definition please refer to the last page of this presentation 4 GEA Capital Markets Day 2014 - Financial Status and Targets engineering for a better world
Financial Targets Organic sales growth of 4% to 6% p.a. until 2020 GEA organic sales growth 2009 – 2013 GEA organic sales growth until 2020: has outperformed GDP by ~200 bps (Index 2009 = 100) 130 GEA: +5.8% p.a. 120 4% to 6% 110 CAGR GDP: +3.8% p.a. 100 until 2020 90 80 70 2009 2010 2011 2012 2013 5 GEA Capital Markets Day 2014 - Financial Status and Targets engineering for a better world
Financial Targets for FY 2017 - FY 2020 Service Business: ~30% of sales Dimensions to further grow the service business: ~30% • Increasing installed of sales equipment base • Improving coverage ratio of own installed base in 27% particular in Emerging of sales Markets • Increasing service intensity per machine (e.g. “condition monitoring”) Service Increasing Improving Increasing Target business installed base coverage service 2017 - 2020 today ratio intensity 6 GEA Capital Markets Day 2014 - Financial Status and Targets engineering for a better world
Financial Targets for FY 2017 - FY 2020 Operating EBIT-Margin: 13% to 16% GEA has gradually managed up Operating EBIT-Margin to ~11% [EURm] 16% Target 13,2% Range 13% 100 10.9% 10.6% 10.5% 10.3% Savings “Fit for 2020“ 8.8% 8.4% 479 459 6.8% 426 403 294 248 192 Target 2008 2009 2010 2011 2012 2013 Q2 2014 1 Target 2017- 2017 - 2020 (LTM) 2020 Operating EBIT Operating EBIT-Margin (LTM) Sales growth 7 GEA Capital Markets Day 2014 - Financial Status and Targets engineering for a better world
Financial Targets for FY 2017 - FY 2020 Working Capital: 10% to 12% of sales • At currently ~12%, the Working [EURm] Capital to sales ratio came down 15.3% 800 16% from 2008/2009 levels 13.0% 12.7% 700 14% 11.9% • Group wide factory coordination 11.4% 11.7% 12% 600 12% will facilitate inventory reductions 11.6% 10% 500 10% in future 525 524 506 400 8% 438 436 430 • During stronger growth periods, WC ratio tends to come up a little 300 343 6% 200 4% 100 2% 0 0% Target Ratio Working Capital: Target 2008 2009 2010 2011 2012 2013 Q2 x y Target 2017 - 2020 2014 10% to 12% of sales Working Capital (average LTM) Working Capital (average LTM) as % of sales (LTM) 8 GEA Capital Markets Day 2014 - Financial Status and Targets engineering for a better world
Financial Targets for FY 2017 - FY 2020 Capex: 1.5% to 2.0% of sales • Capex was above 3% of sales due [EURm] 3.3% to investments into new production 160 4% 3.0% facilities mainly in Europe and 2.8% 140 2.7% China 120 125 • New organization bundling 125 2.7% 121 2.0% 100 production activities in dedicated 2.0% 2.0% areas will even better allocate 92 80 2% 1.5% production capacities 75 60 and hence reduce need for Capex 59 40 20 42 0 -1% Target Capex: Target 2008 2009 2010 2011 2012 2013 H1 x y Target 2017 - 2020 2014 2017 1.5% to 2.0% of sales Capex Capex as % of sales 9 GEA Capital Markets Day 2014 - Financial Status and Targets engineering for a better world
Financial Targets for FY 2017 - FY 2020 Cash Flow Driver Margin: 12% to 15% [EURm] CFD-Margin to benefit from: • Rising EBIT-Margins (min. 13%) 650 15% 13% 550 • Capex restraint 12% 9.0% 9.6% 10.1% (max. 2% of sales) 450 5.8% 8% 414 • Working Capital discipline 394 350 4.2% (max. 12% of sales) 5.0% 3% 250 299 207 150 221 -2% 119 50 Target 2009 2010 2011 2012 2013 Q2 x y Target -50 -7% Target CFD-Margin: 2017 - 2020 2014 12% to 15% Cash Flow Driver (LTM) Cash Flow Driver Margin (LTM) 10 GEA Capital Markets Day 2014 - Financial Status and Targets engineering for a better world
Financial Targets for FY 2017 - FY 2020 ROCE: 20% to 25% • Increasing EBIT-Margins [EURm] 26.4% (numerator) and decreasing Working Capital and Capex to 25% 21.4% 22.1% sales ratios (denominator) should 18.9% 22.9% 20% strengthen ROCE 16.7% • However, acquisitions will have an 11.3% adverse temporary impact due to ppa amortizations and delayed full 1,887 1,895 1,912 year earning recognition 1,620 (numerator), but immediate 1,063 1,094 1,069 addition of target’s asset to capital employed (denominator) Target 2008 2009 2010 2011 2012 2013 Q2 x y Target 2017 - 2020 2014 2017 Target ROCE: Capital Employed (average LTM) 20% to 25% ROCE (average LTM) 11 GEA Capital Markets Day 2014 - Financial Status and Targets engineering for a better world
Agenda • 1 Financial Targets • Capital Allocation 2 • 3 Acquisition Criteria • 4 Preliminary Key Figures Q3 2014 / Guidance FY 2014 12 GEA Capital Markets Day 2014 - Financial Status and Targets engineering for a better world
Why GEA wants to continue to earn investment grade rating Reputation Better More Some debt Lower and illustration access to opportunities covenants interest of financial debt capital to use group require level leeway markets guarantees investment (especially in instead of grade times of external bank distress) guarantees 13 GEA Capital Markets Day 2014 - Financial Status and Targets engineering for a better world
Credit rating does not account for cash position GEA’s strategic minimum Only gross debt Rating relevant (adjusted) Main leverage ratio is taken into cash reserve of around gross debt: gross according to Moody’s: consideration, EUR 150m to 200m not financial debt plus while cash on hand viewed as a safety pension liability plus adjusted gross gets ignored cushion lease liabilities (inferred debt/adjusted from operating leases) EBITDA Adjusted leverage ratio main trigger for GEA’s rating 14 GEA Capital Markets Day 2014 - Financial Status and Targets engineering for a better world
Trigger thresholds for GEA’s credit rating GEA’s rating relevant gross debt is four Target corridor for indebtedness levels applying Q2 2014 numbers times its net financial debt per Q2 2014 [EURm] [EURm] 2,008 2,008 384 Debt reduction Target Gross Debt: 680 2.0-2.5x EBITDA 944 392 552 552 Average Net Debt: 0.5-1.0x EBITDA Net debt Cash Gross Pensions Operating Rating- Rating- Net debt financial lease relevant relevant debt gross debt gross debt 15 GEA Capital Markets Day 2014 - Financial Status and Targets engineering for a better world
GEA’s current main financial debt structure contains redemption potential Maturity of GEA's main financial debt structure per Q2 2014 [EURm] 450 434 34 KfW Loans 150 GEA Bond GEA Bond (4.25% coupon; no call option): EUR 400m EIB Loan KfW Loans: EUR 75m Borrower‘s Note Loan 400 European Investmentbank: EUR 150m 300 Borrower‘s Note Loan: EUR 300m 34 7 2014 2015 2016 2017 Actual average interest level: < 3% p.a. 16 GEA Capital Markets Day 2014 - Financial Status and Targets engineering for a better world
GEA with stronger cash generation going forward Sources of funds: Capital allocation priorities Significant cash flow 2015 - 2017 [EURbn] 1. Dividend payments: Change of payout ratio ~1 from 1/3 to 40-50% of net income ~2 2. Strengthen GEA’s application know-how by ~1 doing (bolt-on) acquisitions over a couple of years Proceeds GEA HX Cash flow before 2017 M&A and dividends 3. Repayment of financial debt Key objectives 4. Invest in organic business development • Maintain financial flexibility (Service, R&D, regional presence) • Maintain investment grade credit rating • Rating relevant gross debt: 2.0-2.5x EBITDA 5. Distribution of residual cash to shareholders • Average net financial debt: 0.5-1.0x EBITDA 17 GEA Capital Markets Day 2014 - Financial Status and Targets engineering for a better world
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