Fiscal year 2019 was a year of profound change for us. The measures we introduced helped shift cash flow well into positive territory, with earnings stabilizing again. We met and, to some degree, even exceeded our targets for revenue, earnings and return on capital employed, thus establishing a solid basis for future value growth.
Marcus A. Ketter
Chief Financial Officer
GEA slightly exceeded its original forecasts for both revenue and ROCE. Despite impacts from various special effects (about EUR 41 million), EBITDA before restructuring measures, which amounted to EUR 479.2 million, occupied the upper end of the predicted corridor. The outlook for revenue – raised slightly in the third quarter of 2019 – was also achieved. Contrary to original expectations, a major decline in EBITDA before restructuring measures failed to materialize either at Business Area Solutions or the Global Corporate Center.
The figure for EBITDA before restructuring measures projected in the 2018 Annual Report was adjusted for a proforma effect of EUR 59 million arising from the initial application of IFRS 16, “Leases” (see page 127 of the 2018 Annual Report). The proforma value calculated for 2019 is, however, EUR 67.3 million.
The group’s order intake for the whole of 2019 amounted to EUR 4,931.1 million, just above the previous year’s level of EUR 4,917.7 million – a new record for GEA (since the sale of GEA Heat Exchangers). This slight increase was attributable mainly to the Business Area Equipment. Adjusted for exchange rate fluctuations (plus 0.9 percent), the change in order intake amounted to minus 0.6 percent. With the exception of projects with order volumes in the range of EUR 1 to EUR 5 million, order intake rose across the board.
Growth in order intake declined notably in the Pharma and Dairy application centers (Business Area Solutions), as well as in the Milking & Dairy Farming product group (Business Area Equipment). This was, however, compensated by, in some cases, double-digit growth in the Beverages application center (Business Area Solutions) and in the Separation, Homogenizers, Flow Components and Compression product groups (Business Area Equipment).
Order intake for the last 5 years
Revenue in 2019 also hit a new high in the current structure – rising slightly by 1.1 percent to EUR 4,879.7 million after EUR 4,828.2 million in the previous year. Adjusted for exchange rate fluctuations (plus 1.0 percent), revenue in the 2019 fiscal year was up slightly by 0.1 percent on the prior year. Service business generated above-average, adjusted growth of 4.7 percent, increasing its share of revenue from 30.9 percent in 2018 to 32.3 percent in the year under review.
Revenue fell in the Food and Chemicals application centers (Business Area Solutions), and in the Milking & Dairy Farming product group (Business Area Equipment). This was, however, more than compensated by, in some cases, double-digit growth in the Beverages application center (Business Area Solutions) and in the Separation, Homogenizers, Flow Components and Compression product groups (Business Area Equipment).
A decline in revenue was observed only in DACH & Eastern Europe, and in Western Europe, the Middle East & Africa. All other regions posted growth in revenue, the highest adjusted figures being recorded in Latin America and North and Central Europe.
Revenue for the last 5 years
Due to the measures introduced in 2019, the data for both order intake and revenue were gratifying for the year as a whole considering the general economic setting and the group’s original expectations for 2019. In terms of earnings, GEA managed to absorb unexpected negative impacts and still achieve an EBITDA before restructuring measures at the upper end of the projected corridor. After initiating a special program, GEA made significant progress in its efforts to scale back the key indicator of working capital, cutting the figure for the previous year by about EUR 65 million. At over EUR 4.9 billion, order intake constituted another record for GEA since the sale of its former heat exchanger segment. The increase was attributable mainly to the Business Area Equipment. Whereas the second quarter was relatively weak due to customers’ having elected to defer mid- and large-scale orders, the volume of new orders on GEA’s books grew significantly in the first and fourth quarters especially.
At almost EUR 4.9 billion, revenue also hit new heights for the group in its present structure. Although a moderate fall had initially been predicted for 2019, revenue had actually risen slightly by the end of the year in question. Service business reported above-average growth in the year under review. EBITDA before restructuring measures stood at around EUR 479 million. When comparing this figure with the prior-year amount, it should be taken into account that it was negatively impacted by the net effect of a number of non-recurring factors, including currency translation effects, in the double-digit million euro range. That EBITDA before restructuring measures reached the level disclosed is evidence that the restructuring measures introduced in the course of the year had the desired effect of stabilizing the group. This applies particularly to the Business Area Solutions.
Nevertheless, for 2019 as a whole, GEA did report negative EBIT of around EUR –109.1 million. The decline in operating earnings, the impairment on the goodwill of the subsidiary Pavan S.p.A., and higher outlays on restructuring measures all played a significant role in this effect. Despite negative consolidated earnings, the company’s proven operational strength has prompted the Supervisory Board and Executive Board to propose that the Annual General Meeting approve the payout of an unchanged dividend of EUR 0.85 per share for fiscal year 2019. The declared target range for the dividend payout of between 40 and 50 percent of consolidated earnings applies as before.
In summary, it should be noted that the 2019 predictions for revenue and ROCE published in the 2018 Annual Report were actually exceeded, while EBITDA before restructuring measures – despite various negative non-recurring effects – still occupied the upper end of the predicted corridor. Various non-cash impairments and advance restructuring expenses meant that consolidated earnings in 2019 were negative; this does not, however, have any bearing on the proposed dividend payout.