GEA Annual Report 2018
Pobierz
Letter to our Shareholders
Stefan Klebert

Stefan Klebert, CEO

Dear Shareholders,

Looking back on 2018 reveals a mixed year, in which revenue growth clearly outperformed expectations, while the company’s earnings margin turned out to be disappointing. Our ambition for the future is therefore clear: GEA must regain its former strength as the company holds plenty of potential.

I have been a member of GEA’s Executive Board since November 15, 2018, and took over as its Chairman on February 18, 2019. Over the last several months, getting to know GEA has been at the very top of my agenda. For this reason, I primarily devoted the first few weeks to gaining a better understanding of our company, our employees and customers, as well as our products. I have visited numerous sites worldwide and also attended a few specialty trade shows; on these occasions, I spoke to many employees and engaged with clients. I wanted to find out their concerns, what challenges they see for GEA and what, from their respective point of view, should be addressed or tackled differently in the future. 

I have learned a lot about this impressive company. A company holding leading positions in a wide range of different industries with excellent prospects for the future and which possesses unique know-how, innovative products and highly committed employees, who sincerely regard GEA as their company by putting their hearts and souls into their work each day. 

However, I also fully recognise that GEA’s capital market performance has been disappointing. The share price responded accordingly, and our enterprise value has witnessed a sharp decline since fall 2016. This development clearly underlines that we cannot and will not continue like this. We are seeking to regain your trust in GEA – including the trust of the entire capital market – by taking consistent and transparent action. 

As a first step and for the purpose of demonstrating our dividend continuity, the Executive Board and the Supervisory Board have taken the following decision: Despite the unsatisfactory development of our business throughout the previous year, we intend to once again propose a dividend in the amount of EUR 0.85 per share at the Annual General Meeting. Once again, this would be equivalent to a dividend payout of EUR 153.4 million for the 2018 fiscal year. 

Now, we must look ahead to the future and urgently take forward the most important topics. Immediately after taking over as Chairman of the Executive Board, I met with roughly 60 of the company’s most senior executives from all areas of our global business for an intensive workshop. Together, we took stock of GEA’s current situation and set priorities for the months ahead. We will critically scrutinize both our fundamental structure and internal processes. Moreover, we see potential for improvement, in particular in terms of organizational structure, financial transparency as well as IT, purchasing, our global manufacturing footprint and internal responsibilities. We are analyzing in detail those areas responsible for our decline in earnings for the purpose of taking countermeasures as soon as possible. Because GEA will primarily focus on tackling these challenges, I do not anticipate any significant acquisitions in the near future. 

Our common objective is to clearly demonstrate one thing: that GEA is a market and innovation leader in many promising industries, plays in the premier league and reaps the respective economic rewards of its efforts. GEA’s ambition is to wow its customers by offering sustainable products and solutions while being an attractive employer to its workforce. Last but not least, we jointly seek to ensure that GEA is a company that is held in high esteem by you, dear Shareholders. 

We have a lot of work ahead of us that will certainly require effort and time, notably due to the fact that the market is unlikely to deliver any positive tailwinds in 2019. Nonetheless, I am absolutely certain that we will get GEA back on track and on the road to success by focusing on our own strengths and by joining forces and pulling together. We are a company with great products, excellent employees and a healthy balance sheet. This is what we need to rely and build upon. 

I am looking forward to meeting these challenges together with the GEA team and very much appreciate the trust and confidence you have placed in this company. 

Stefan Klebert
CEO
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Dr. Helmut Perlet

Dr. Helmut Perlet, Chairman of the Supervisory Board

Report of the Supervisory Board

During fiscal year 2018, the Supervisory Board performed the monitoring and advisory functions incumbent upon it by virtue of the law, the Articles of Association and the Rules of Procedure. In doing so, it regularly dealt with the progress and the prospects of the company as well as all specific material issues while continuously advising the Executive Board on matters relating to the management of the company.

For fulfilling its tasks, the Supervisory Board, on the one hand, relied on the discussions held during its meetings and the meetings of its Committees. On the other hand, the Executive Board – in compliance with its obligation to inform – kept the Supervisory Board and its Committees up to date through regular, timely and comprehensive written and/or oral reports on all relevant matters and measures relating to the company, its course of business, corporate planning, strategy as well as the progress of the group. The Supervisory Board was involved in all decisions of fundamental importance to the company and assisted the Executive Board in an advisory capacity. At Committee level and during the meetings of the full Supervisory Board, the members of the Supervisory Board were given sufficient opportunity to critically analyze and appraise the reports and motions for resolution submitted by the Executive Board - and to put forward recommendations. The results obtained and the essential contributions made during the discussions held at Committee meetings were presented by the Chairmen of the Presiding and the Audit Committees at the respective following Supervisory Board meetings and, thus, assisted the full Board in forming an opinion. This way, the preparatory and in-depth work undertaken by the Committees was instrumental in enhancing the overall efficiency of the activities of the Supervisory Board. 

Furthermore, the Chairmen of the Supervisory Board and the Audit Committee maintained regular contact with the Executive Board. Between the meetings, the Chairman of the Supervisory Board and the Chairman of the Executive Board regularly discussed matters of strategy, planning, business progress, risk exposure, risk management and compliance. Outside of meetings, the Chairman of the Audit Committee remained in contact with members of the Executive Board, in particular the Chief Financial Officer, to keep abreast of current developments relevant to the work of the Audit Committee and to discuss them, if necessary. In preliminary meetings with the Executive Board, the employee representatives regularly deliberated on the most important agenda items prior to the meetings of the full Supervisory Board. 

On a regular basis, the Supervisory Board received specific information on the order intake, revenue, earnings as well as the employment situation of the group and its business areas. Explanations on deviations of business performance from set plans and targets were given on the basis of supporting documents. Prior to and between the meetings, the Executive Board delivered written reports on significant events to the members of the Supervisory Board. Following deliberations at Committee level, the future prospects and the strategic orientation of the company and its business areas, as well as corporate planning were extensively discussed and agreed with the Supervisory Board.

After extensive scrutiny and deliberations as well as discussions at Committee level, as the case may be, the members of the Supervisory Board cast their votes on the reports and motions for resolution submitted by the Executive Board insofar as this was appropriate or required by law, the provisions of the Articles of Association or the Rules of Procedure. For reasons duly substantiated, in particular in matters of special urgency, resolutions were adopted by written procedure. 

In the year under review, there were no conflicts of interest involving members of the Executive Board and the Supervisory Board that would have required immediate disclosure to the Supervisory Board and communication to the Annual General Meeting.

Focal points of Supervisory Board deliberations

In fiscal year 2018, the Supervisory Board held eight meetings. On these occasions, the Supervisory Board regularly discussed matters relating to the company’s business progress, its financial position as well as share price performance. Apart from that, the following key topics were debated. 

The key items on the agenda of the Supervisory Board meeting held on February 15, 2018, included the 2018 budget, the current progress of Project Value as well as the 2017 bonus achievement of the Executive Board. 

Key issues addressed during the Supervisory Board meeting held on March 8, 2018, embraced the adoption of the annual financial statements and the approval of the consolidated financial statements for fiscal year 2017, including the appropriation of net earnings. Apart from that, the Supervisory Board dealt with the final determination and weighting of the Executive Board members’ individual targets for the 2018 fiscal year, the reappointment of two members of the Executive Board, the motions for resolution on individual agenda items that were to be submitted to the 2018 Annual General Meeting as well as the capital markets day and the “OneGEA Finance” project. In addition, the company’s Chief Compliance Officer delivered a detailed report on the 2017 fiscal year. 

The extraordinary conference call Supervisory Board meeting held on March 19, 2018, focused on the early departure of the Chairman of the Executive Board and the further proceedings to be taken in relation to CEO succession. 

At the Supervisory Board meeting held on April 18, 2018, the Board addressed Executive Board matters including Executive Board succession as well as the preparation of the Annual General Meeting on the following day. Furthermore, the Supervisory Board and Dr. Helmut Schmale, the company’s Chief Financial Officer, mutually agreed that Dr. Helmut Schmale would retire from the Executive Board before the end of his appointment that was due to expire at the end of March 2021. 

Key issues raised during the meeting held on June 21, 2018, included a report on the current state of play in Executive Board succession planning, the new Executive Board remuneration scheme, the performance of the Shared Service Center, the strategy and objectives pursued in connection with digitalization as well as the portfolio analysis. Moreover, the Supervisory Board passed resolutions on the cancellation of treasury stock, the pension benefits adjustment as regards former members of the Executive Board as well as the conduct of the efficiency check with the support of an external consultant. 

On September 18, 2018, the Supervisory Board convened in Venice, Italy. Apart from the regular meeting of the Supervisory Board, the agenda included a visit to the head office of the recently acquired Pavan S.p.A. group located near Venice. During their tour, the members of the Supervisory Board were shown various digital solutions and applications developed by GEA within the framework of a so-called digital market place. During its meeting, the Supervisory Board continued its deliberations on the current progress of the new Executive Board remuneration system as well as Executive Board succession planning. On top of that, the Supervisory Board was informed about the current state of play in the 2018 target achievement of the Executive Board. Another topic raised was Supervisory Board succession planning. Finally, the Supervisory Board addressed performance initiatives and portfolio issues. 

In its extraordinary meeting on September 19, 2018, the Supervisory Board appointed Stefan Klebert to the Executive Board, first as an ordinary member, then as Chairman of GEA’s Executive Board with effect from February 18, 2019. Besides, the Supervisory Board agreed on a potential candidate to fill an employer representative position on the Supervisory Board that was expected to become vacant. 

During its meeting held on December 19, 2018, the Supervisory Board addressed the performance of Dairy, the report on the integration of the Pavan Group, the level of target achievement attained by the members of the Executive Board in 2018 as well as the proposal for Executive Board targets for the year 2019. Furthermore, the final report on the 2018 efficiency check was presented and discussed. In addition, those present delved deeper into the “new Executive Board remuneration system“ and were brought up to speed on “Executive Board succession planning“. The new Executive Board remuneration system was adopted, factoring in observations and comments made by investors who had been familiarized with the new Executive Board remuneration system during a roadshow in autumn 2018. Moreover, the Supervisory Board appointed Marcus A. Ketter as new Chief Financial Officer and approved the termination agreement concluded with Jürg Oleas. Colin Hall was elected as new Presiding Committee member and Dr. Molly Zhang as new member of the Mediation Committee. In addition, the Supervisory Board adopted the 2018 Declaration of Conformity pursuant to the German Corporate Governance Code. 

Work of the Committees

In the year under review, the Presiding Committee met on eight occasions with a main focus on succession planning processes in relation to the CEO and CFO positions, as well as the new Executive Board remuneration system. Apart from that, the Presiding Committee specifically addressed the topic of corporate governance and transactions requiring approval. Furthermore, the Presiding Committee’s remit includes matters of corporate strategy, capital investment as well as funding that are addressed together with the Executive Board. 

The Audit Committee held five meetings. In the presence of the auditor, the Chairman of the Executive Board as well as the Chief Financial Officer, it focused on the annual financial statements in conjunction with the consolidated financial statements for 2017, the 2018 quarterly financial statements and the half-yearly financial reports. Furthermore, the Committee’s key activities included monitoring the accounting process, the effectiveness of the internal control, risk management and audit systems, the audit of the annual financial accounts as well as compliance.

At regular intervals, the Audit Committee was briefed on the risks and opportunities faced by the company. The auditors extensively elaborated on their audit activities and the audit process. In addition, the Audit Committee submitted its proposal for the appointment of an auditor to the Supervisory Board, dealt with the engagement of the auditor of the annual financial accounts, determined the audit process and the key audit areas including audit fees, ensured the required independence of the auditor and addressed the permitted non-audit services provided by the latter.

In the year under review, the Nomination Committee was convened on one occasion and discussed the replacement of a retiring Supervisory Board member. 

The year under review did not see a meeting of the Mediation Committee. 

The Committee chairmen briefed the Supervisory Board on the activities undertaken by the Committees during the Supervisory Board meetings following the respective Committee meetings. 

With effect from May 1, 2019, the Supervisory Board formed a Technology Committee comprising Dr. Molly Zhang, Jean E. Spence, Michaela Hubert and Brigitte Krönchen.

Disclosure of individual meeting attendance

Supervisory Board member Supervisory Board and Committee meetings Attendance Attendance rate
Dr. Helmut Perlet (Chairman) 21 21 100 %
Kurt-Jürgen Löw (Deputy Chairman) 16 16 100 %
Ahmad Bastaki 16 12 75 %
Prof. Dr. Werner Bauer (member until November 12, 2018) 13 13 100 %
Hartmut Eberlein 14 14 100 %
Rainer Gröbel 16 16 100 %
Colin Hall (member since November 13, 2018) 3 3 100 %
Michaela Hubert 16 16 100 %
Eva-Maria Kerkemeier 8 7 88 %
Michael Kämpfert 13 13 100 %
Brigitte Krönchen 13 13 100 %
Jean Spence 8 8 100 %
Dr. Molly Zhang 8 7 88 %

 

Whenever Supervisory Board members were unable to attend meetings of the Supervisory Board or its Committees, they had asked to be excused and usually cast their votes in writing, in particular as regards the personnel decisions that were taken.

Corporate governance

The Supervisory Board is continuously monitoring the evolution of the standards set out by the Corporate Governance Code. At its meeting on December 19, 2018, it discussed the recommendations and suggestions of the German Corporate Governance Code as amended on February 7, 2017, as well as the structure and contents of the draft German Corporate Governance Code that had been submitted in early November 2018 and was to enter into force in 2019 following a fundamental overhaul. After concluding their respective deliberations, the Executive Board and the Supervisory Board issued an updated Declaration of Conformity in accordance with s. 161 AktG (Aktiengesetz – German Stock Corporation Act) and made it permanently accessible to the general public on the company’s website. Further information on corporate governance can be found in the Corporate Governance Report (see page 59 ff.).  

Annual financial statements and consolidated financial statements 2018

The 2018 annual financial statements of GEA Group Aktiengesellschaft, the consolidated financial statements prepared in accordance with IFRS and the combined management report were audited by KPMG AG Wirtschaftsprüfungsgesellschaft and received an unqualified audit opinion. Since fiscal year 2011, KPMG AG Wirtschaftsprüfungsgesellschaft, Berlin, has audited the financial statements of GEA Group Aktiengesellschaft and the group. The head auditor responsible for conducting the audit since 2018 has been Michael Jessen. 

In the presence of the auditors, the combined management report, the annual financial statements of GEA Group Aktiengesellschaft, the proposal for the appropriation of net earnings as well as the consolidated financial statements and the audit reports for fiscal year 2018 were extensively discussed during the meeting of the Audit Committee on March 7, 2019, and at the Supervisory Board meeting for balance sheet approval held on March 13, 2019. The auditors reported on the audit process and the key findings of their audit. They were also available to answer questions. 

On the basis of the final result of the examination performed by the Audit Committee and after conducting its own scrutiny, the Supervisory Board agreed with the auditors’ findings at its meeting held on March 13, 2019, and found that there were no objections to be raised. The Supervisory Board approved the 2018 consolidated financial statements, the 2018 annual financial statements of GEA Group Aktiengesellschaft, as well as the combined management report. The annual financial statements of GEA Group Aktiengesellschaft are hereby adopted. The Supervisory Board considers the proposal for the appropriation of net earnings to be reasonable.

The review of the company’s non-financial statement for fiscal year 2018 by the Supervisory Board pursuant to s. 171 para. 1 AktG was supported by a limited assurance engagement conducted by KPMG. For this purpose, KPMG audited GEA’s risk assessment as regards information on the company’s sustainability performance, evaluating the design and implementation of systems and processes designed to ascertain, process and monitor disclosures on environmental, employeerelated and social matters, human rights, corruption and fraud, including data consolidation. Referring to the auditor’s findings, the Audit Committee also conducted its own audit steps and satisfied itself that the data submitted was in compliance with the legal requirements; thereafter, the Chairman of the Audit Committee informed the Supervisory Board accordingly.

Changes in the composition of the Supervisory Board and the Executive Board

Steffen Bersch’s and Niels Erik Olsen’s appointments as ordinary Executive Board members due to expire on December 31, 2018, were renewed for another three-year term until and including December 31, 2021.

Jürg Oleas left the company on February 17, 2019. Dr. Helmut Schmale will retire from the Executive Board on May 17, 2019. The Supervisory Board would like to thank Jürg Oleas and Dr. Helmut Schmale for their many years of dedicated service to GEA and their good and trusting cooperation, and wishes them all the best for the future. 

Stefan Klebert was appointed to the company’s Executive Board with effect from November 15, 2018, until December 31, 2021. He took over as Chairman of the Executive Board from Jürg Oleas on February 18, 2019. Marcus A. Ketter will assume the position of Chief Financial Officer on May 20, 2019. He was appointed for a term of three years.

At midnight on November 12, 2018, Prof. Werner Bauer resigned as a member of the Supervisory Board of GEA Group Aktiengesellschaft. By resolution of November 13, 2018, Colin Hall was appointed as new member of the company’s Supervisory Board by the Dusseldorf Local Court. Succeeding Prof. Bauer, Dr. Molly Zhang was elected as new member of the Mediation Committee and Colin Hall as new Presiding Committee member on December 19, 2018.

The Supervisory Board wishes to express its gratitude and appreciation to the senior management teams, employee representative bodies and, in particular, to all employees of GEA Group for their personal commitment and dedication as well as their hard work throughout an exceptionally challenging fiscal year.

Dr. Helmut Perlet
Chairman of the Supervisory Board
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GEA – globally active

In 2018, GEA generated consolidated revenues of around EUR 4.8 billion. The food and beverages sector, which enjoys long-term sustainable growth, accounted for around 70 percent of this total.

Order intake

4,918
EUR million

Operating EBITDA

518
EUR million

Revenue

4,828
EUR million

Operating EBITDA margin

10.7%

Dividend proposal

0.85
EUR per share

Employees

18,642
Full-time equivalents

IFRS Key Figures of GEA

EUR million
2018
2017¹
Change in %
Results of operations
Order intake
2018
4,917.7
2017¹
4,750.8
Change in %
3.5
Revenue
2018
4,828.2
2017¹
4,604.5
Change in %
4.9
Operating EBIDTA²
2018
518.2
2017¹
563.5
Change in %
-8.0
as % of revenue
2018
10.7
2017¹
12.2
Change in %
Operating EBIT²
2018
417.6
2017¹
477.8
Change in %
-12.6
as % of revenue
2018
8.6
2017¹
10.4
Change in %
EBIT
2018
259.8
2017¹
380.2
Change in %
-31.7
Net assets
Working capital intensity in % (average of the last 12 months)
2018
16.9
2017¹
15.9
Change in %
Net liquidity (+)/Net debt (-)
2018
-72.2
2017¹
5.6
Change in %
Financial position
Operating cash flow driver margin³
2018
6.8
2017¹
8.4
Change in %
ROCE in % (goodwill adjusted)⁴
2018
9.2
2017¹
15.6
Change in %
Full-time equivalents (reporting date)
2018
18,642
2017¹
17,863
Change in %
4.4
GEA Shares
Earnings per share (EUR)
2018
0.63
2017¹
1.30
Change in %
-52.1
  1. The purchase price allocation for the Pavan Group acquired in the previous year was finalized in the fourth quarter of 2018 resulting in changes to the comparative figures as of December 31, 2017
  2. Before effects of purchase price allocations and adjustments (see Annual Report 2018, page 220 f.)
  3. Operating cash flow driver = operating EBITDA – capital expenditure + adjustment of capital expenditure in strategic projects – change in working capital (average of the last 12 months)
  4. Capital employed excluding goodwill from the acquisition of the former GEA AG by former Metallgesellschaft AG in 1999 (average of the last 12 months)

Our Business

Our customers are at the heart of everything we do and we build strong partnerships with them. We provide individual and sustainable solutions for a wide range of customer-specific applications.

10

Applications

24

Product groups

12

Services

Global Presence

GEA is one of the largest suppliers for food processing technology and a wide range of other industries. The global group specializes in machinery, plants, as well as process technology and components. GEA provides sustainable solutions for sophisticated production processes in diverse end-user markets and offers a comprehensive service portfolio.

Employees worldwide
North America
1821
Latin America
518
North and Central Europe
3056
DACH and Eastern Europe
6765
Asia Pacific
3049
Western Europe, Middle East and Africa
3434
World map revenue
North America
866m
Latin America
347m
North and Central Europe
643m
DACH and Eastern Europe
1039m
Asia Pacific
1081m
Western Europe, Middle East and Africa
853m

Financial Performance

Revenue growth was significantly greater than in GEA’s original forecast, published in the 2017 Annual Report, or the most recent adjusted forecast. The operating EBITDA margin and the operating cash flow driver margin, however, were lower than expected. The main reasons for missing the forecast were unexpected price pressure and a decline in margins as well as an unfulfilled earnings expectation at the Application Center (APC) Dairy. The operating EBITDA margin (at constant exchange rates) of GEA and both Business Areas declined by around 170 basis points each.

Economic Position

The group’s order intake for the whole of 2018 amounted to EUR 4,917.7 million, or 3.5 percent above the previous year’s level – a new record for GEA. This increase was mainly due to acquisitions. Adjusted for exchange rate fluctuations (minus 2.9 percent) and acquisition effects (4.2 percent), adjusted growth amounted to 2.2 percent. This increase resulted above all from order intake in the range up to EUR 5 million. The 2018 revenue also sets a new record for GEA. It rose by 4.9 percent to EUR 4,828.2 million. Adjusted for exchange rate fluctuations (minus 3.1 percent) and acquisition effects (4.1 percent), revenue in the 2018 fiscal year was 3.8 percent higher year on year. At 30.9 percent, the share of revenue enjoyed by the service business was exactly the same as in the previous year. Adjusted growth in this business once again amounted to gratifying 6.4 percent in the reporting period.

Order intake

EUR million

Revenue

EUR million

Dividend Payments¹

The defined generally envisaged target range for the dividend is between 40 and 50 percent of consolidated profit. Nevertheless, the Supervisory Board and Executive Board will propose that the Annual General Meeting approve payout of an unchanged dividend of EUR 0.85 per share for fiscal year 2018. Exceeding the target corridor reflects the continued confidence in GEA‘s operational strength.

  • Dividend
  • Dividend proposal
  • Dividend per share, EUR
  1. Dividend payments respectively for the preceding fiscal year
  2. On basis of dividend proposal

Comparison of net assets

GEA’s overriding goal is to sustainably increase its enterprise value by growing profitably. The operating cash flow driver margin is a simplified cash flow indicator (EBITDA minus capital expenditures for property, plant, and equipment, and intangible assets (Capex) and minus the change in average working capital) and is expressed as a ratio to revenue. This indicator does not include capital expenditures in strategic projects.

Assets

2018
2017
Non-current assets
3 115
3 234
Current assets
2 604
2 514
Thereof assets held for sale
4
0
Total (EUR million)
5 719
5 7481

Equity and liabilities

2018
2017
Equity
2 449
2 503
Non-current liabilities
1 381
1 159
Current liabilities
1 889
2 086
Thereof current financial liabilities
0
0
Total (EUR million)
5 719
5 7481
  1. The purchase price allocation for the Pavan Group, acquired in the previous year, was finalised in the fourth quarter of 2018. This results in retrospective adjustments to the comparative figures reported as of 31 December 31, 2017 and the quarterly figures for 2018

Overall Assessment of Business Development

GEA had to contend with a difficult market environment in 2018 which only got worse as the year progressed. Although order intake and revenue were gratifying over the year as a whole, earnings were disappointing.

At around EUR 4.9 billion, the figure for order intake was a new record – largely the result of acquisitions. This was also the result of excellent order intake figures in the second and third quarters, although momentum was lost towards the end of the year. 

At EUR 4.8 billion, GEA’s revenue before adjustments rose by 5 percent on the previous year, with increases recorded in virtually all product groups and application centers. By contrast, revenue was down in the APC Dairy. 

Pressure on the gross profit margin was particularly noticeable in 2018: indeed, at around EUR 518 million, operating EBITDA was almost 8 percent down on the previous year. The corresponding margin stood at 10.7 percent. Unfortunately, timely price initiatives failed to produce the expected results. Pressure on prices was especially intense in the Separation and Flow Components product groups, and even dairy processing failed to live up to our earnings forecast. 

The fall in operating profit, coupled with an increase in capital expenditure impacted on the cash flow driver margin, which stood at around 6.8 percent for the 2018 financial year. 

Intangible assets were written down further as a result of the reduction in the earnings forecasts for the future. In addition, the future usefulness of existing tax loss carryforwards has decreased. This led to valuation adjustments for deferred taxes of EUR 46.2 million in 2018, and correspondingly reduced earnings per share to just EUR 0.63. 

In summary, we can reaffirm that the earnings forecast for 2018 (as published in the 2017 Annual Report) with respect to revenue was surpassed. By contrast, the figures for operating EBITDA and operating cash flow driver margin failed to meet our expectations. 

Business outlook

This forecast is based on the above assumptions and takes into account, among other things, the assumption that there will be no significant slowdown in global economic growth. Potential acquisitions and divestments in 2019 have not been factored into the calculation. A definition of the key financial performance indicators can be found in the chapter “Control system” (see Annual Report 2018, page 28 ff.).

Revenue

moderately below the previous year’s level

EBITDA before restructuring measures

between EUR 450 and 490 million

ROCE

8.5 - 10.5 %

The difference in the expected profit margin for 2019 between this outlook and the figures communicated in the ad-hoc disclosure on 6 February results from the initial application of IFRS 16 (plus EUR 59 million) and the inclusion of strategic projects (minus EUR 49 million) that have not yet been taken into account.

The initial application of IFRS 16 (“Leases”) will lead to a significant increase of approximately EUR 186 million in capital employed. In addition to leases that will continue beyond the initial application on January 1, 2019, the estimate includes leases that have already been scheduled to begin in fiscal year 2019. In this context, EBIT will increase only slightly by EUR 3 million. In terms of ROCE, we therefore expect a negative effect from the initial application of IFRS 16 when this indicator is considered in isolation. Detailed information on IFRS 16 can be found in the notes to the consolidated financial statements (see Annual Report 2018, page 142 ff.).

Portfolio

The strategy of acquiring companies to open up new markets for GEA or specifically expand GEA’s product portfolio in existing markets remains in place. This will enable us to provide our customers with an ever-broader range of services from a single source. In addition, we subject our current portfolio of products and services to regular reviews. GEA will make no noteworthy acquisitions in 2019.

Dividend

The Executive Board and Supervisory Board will propose to the Annual General Meeting an unchanged dividend of EUR 0.85 per share for 2018. This means that the total dividend payout will again amount to some EUR 153.4 million based on the number of dividend-bearing shares in circulation as of March 12, 2019. This dividend payment would exceed our declared target of distributing between 40 and 50 percent of net income to shareholders.

Summary

All told, GEA is expecting consolidated revenues to decline against a deteriorating economic backdrop. Non-recurring other operating income is set to fall significantly compared with 2018. At the same time, payroll and IT infrastructure costs are set to rise. The challenging market environment will make it increasingly difficult to push through price increases. Together with the volume effect, these trends will conspire to produce a drop in earnings in the current fiscal year. The return on capital will also be lower. With regard to the distribution ratio, our objective is still to distribute between 40 and 50 percent of net income to our shareholders.

Digital Ambition

Our solutions and products are smart, connected and empowered by standard- setting software, digital platforms & algorithms enabling us not only to predict and improve the quality of our installed lines but also to support customers in adapting products to changing consumer behavior and of course, run plants efficiently.

We excel in our service-oriented business model ...

... leveraging efficiencies from integrated business and engineering processes to smart production plants.

Our business model is leveraged to create customer value.

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