GEA Group presented end of September ist „Mission 26“ strategy in London as part of its Capital Markets Day. The plan for the next five years defines seven key levers to accelerate sustainable, profitable growth. The focus is on sustainability, innovation and digital solutions, New Food, as well as excellence initiatives in sales, service and operations. The company is also looking at targeted acquisitions.
“We have set ourselves the goal of being at the forefront of the mechanical and plant engineering industry,” says Stefan Klebert, CEO GEA. “We take it upon ourselves to protect future generations by offering sustainable solutions for the food and pharmaceutical industries. In these attractive markets, we want to continue to grow profitably while contributing to a better world, as anchored in our purpose – engineering for a better world.”
Ambitious financial targets set for 2026
“Mission 26” sets ambitious financial targets for 2026. Organic sales growth of 4.0 to 6.0 percent per year is expected, leading to sales of around EUR 6 billion (FY 2020: EUR 4.635 billion). The EBITDA margin before restructuring expenses is projected to grow to a record level of more than 15 percent (FY 2020: 11.5 %). The Group-wide return on capital employed (ROCE) is anticipated to increase significantly to over 30 percent (FY 2020: 17.1 %).
In the context of further targets, a stable ratio of net working capital to sales of 8.0 to 10.0 percent is expected by 2026. Capital expenditure (CAPEX) is projected to be around EUR 200 million annually until 2026. Overall, this leads to strong free cash flow generation of around EUR 2 billion from 2022 until 2026.
“We are creating significant value for our shareholders through 2026 and beyond,” says Marcus Ketter, CFO. “Our shareholders will participate in this success with sustainable dividend increases.”
Holistic climate and sustainability approach
In June 2021, GEA presented its interim targets for reducing its own greenhouse gas emissions alongside its net zero ambition for 2040. Greenhouse gas emissions in Scopes 1 and 2 are to be reduced by 60 percent and in Scope 3 by 18 percent by 2030 (base year 2019). The Science Based Targets initiative (SBTi), the globally recognized independent body for reviewing climate targets, validated GEA’s CO2 reduction targets in September 2021. SBTi thus confirms that GEA’s interim targets follow the latest climate science and make an effective contribution to achieving the 1.5-degree Celsius target of the Paris Climate Agreement
In addition to the climate targets already communicated, GEA has set ambitious ESG targets. Combined, these measures focus on environmentally sustainable customer solutions and responsible operations. Furthermore, GEA aims to be the employer of choice in the industry.
“Sustainability is firmly anchored in the company’s DNA and is therefore also an essential part of Mission 26,” says Klebert. “With our ambitious approach, we help our customers achieve their own environmental goals. Likewise, we strive for the highest standards in our operations and support our employees in developing their skills. In this way, we live up to our social responsibility and ensure GEA’s lasting success.”
GEA drives product innovation with R&D and digitalization
“Innovation & Digitalization” are also expected to make a significant contribution to realizing the goals of “Mission 26”. Here, GEA aims to increase the proportion of sales of products that are less than five years old – from the current level of 10 percent to about 30 percent. To fuel this development, GEA will increase its research & development spending by approximately 45 percent over the next few years.
In addition to introducing new products, GEA will offer customers more digital solutions to further enhance their processes and GEA machine efficiency. To drive the digital customer journey and the development of digital solutions forward, these competencies haven been combined under the newly created position of Chief Digital Officer (CDO), effective August 1, 2021.
Growth market New Food: GEA with unique position
In the dynamically growing New Food market, GEA will expand its already strong position and become a market leader. Here, the company intends to leverage its strengths in scaling industrial applications and its unique position as a full-line supplier. GEA anticipates order intake for newly developed and existing machines from this segment to exceed EUR 400 million per year by 2026. “Consumer expectations around food are changing. For example, environmental impact and animal welfare are increasingly prioritized, and demand for high-quality, protein-rich foods is growing rapidly. GEA is optimally positioned to meet this demand,” explains Klebert.
GEA has already demonstrated its strength in this dynamic market by winning one of the largest orders in the company’s history: Novozymes, the world’s largest supplier of enzyme and microbial technologies in Denmark, is entrusting GEA with the turnkey fitting of a large-scale plant in the U.S. to produce plant-based proteins.
Excellence initiatives in sales, service and operations
Further growth opportunities for “Mission 26” lie in sales, service, purchasing and production. In GEA’s regions and countries, sales effectiveness and presence will be better exploited by deploying more of the company’s own sales staff in key markets. Sales of new machines are expected to grow by 4.0 to 5.0 percent per year until 2026.
Further growth potential was also identified in the service area, which is a resilient and profitable business for GEA. The aim is to increase coverage and expand the service business with customers by 2026, thereby boosting recurring revenue. This approach is expected to generate annual organic revenue growth of 5.0 to 6.0 percent in the service business until 2026.
The optimization measures announced at the 2019 Capital Markets Day impacting purchasing, production and logistics will be continued. In the process, purchasing activities were bundled in a central purchasing organization, the production network was improved, and greater flexibility was created at sites. The aim is to enable a transition to best-in-class procurement by 2026, further optimize the production network and reduce delivery times to customers.
“Global Operations is undergoing a comprehensive and long-term transformation process,” explains Johannes Giloth, COO GEA: “In addition to cost reductions, this also involves creating structures for further growth. In this way, Global Operations will continue to have a significant positive impact on profitability in the future.” Between 2022 and 2026, further optimizations in purchasing (EUR 90 million) and production (EUR 60 million) are expected to have a total net impact on EBITDA of EUR 150 million.
GEA examines possible acquisitions
Strong cash generation and a solid balance sheet will enable external growth. GEA will therefore examine value-enhancing acquisitions to strengthen its portfolio.
Outlook for business development in 2021 and 2022 confirmed
GEA confirms the guidance for fiscal year 2021 that was raised in July 2021. Organic growth of 5.0 to 7.0 percent is expected for revenue. EBITDA before restructuring expenses at constant exchange rates is anticipated to be in a range between EUR 600 million and EUR 630 million. The outlook for ROCE at constant exchange rates is likely to be in the range between 23 to 26 percent.
At the Capital Markets Day in September 2019, GEA communicated its targets up to 2022. In March 2021, when the annual figures for 2020 were presented, GEA adjusted its medium-term financial targets for 2022 upwards. GEA has confirmed these again. Group revenue is expected to grow by an average of 2.0 to 3.0 percent annually from 2019 until 2022, the EBITDA margin before restructuring expenses is to increase to a target corridor of 12.5 to 13.5 percent (Capital Markets Day 2019: 11.5 to 13.5 percent) and the ratio of net working capital to revenue is to be reduced to the range between 8.0 and 10.0 percent (Capital Markets Day 2019: 12.0 to 14.0 percent).
Symrise very successfully continued its profitable growth course in the first half of 2020 also during the global coronavirus pandemic. The Group increased its sales by 7.6 % to € 1,821 million in an economically challenging market environment. In organic terms – i.e. excluding the portfolio effect of the ADF/IDF acquisition and exchange rate effects – sales were up by 3.4 %. All segments contributed to this positive development. Earnings before interest, taxes, depreciation and amortization (EBITDA) increased by 11.9 % to € 393 million as compared to the previous year’s level normalized for acquisition and integration costs for ADF/IDF (H1 2019: € 351 million). Profitability developed particularly well: The EBITDA margin rose to 21.6 % and lies thus significantly higher than the profitability target for 2020. The net income for the reporting period increased to € 169 million. Against the backdrop of the strong business performance and profitability trend in the first half of the year, Symrise is raising its full-year EBITDA margin guidance from 20 % to a range of 21 to 22 %.
“In the second quarter the coronavirus pandemic began to significantly impact the global economy and above all many people’s everyday lives. Even in this historically exceptional situation, Symrise has done an excellent job of staying on course. Thanks to our global presence, diversified portfolio and broad customer base, our feet rest very firmly on the ground. We remained fully operational in the second quarter and were able to supply our customers in the usual reliable manner,” said Dr Heinz-Jürgen Bertram, CEO of Symrise AG. “Of course, it is hard to predict the course of the coronavirus pandemic. However, after our performance in the first half of the year, we are looking ahead to the second half with confidence. For the full fiscal year 2020 we again want to grow faster than the market and expect that we will achieve increased profitability overall. We are therefore raising our guidance for the EBITDA margin to a range of 21 to 22 %.”
With coronavirus pandemic ongoing, continued growth in all segments
The Symrise Group achieved sales growth of 7.6 % in the first half of 2020 to € 1,821 million (H1 2019: € 1,692 million). The acquisition of ADF/IDF had a positive impact of € 106 million on sales performance. In organic terms, sales increased by 3.4 %. Amid the coronavirus pandemic, changes in consumer behavior were seen for the first time in the Scent & Care and Flavor segments in the second quarter. This resulted in both positive and negative effects on demand in individual business units. With its broad range of product solutions for foods, personal care and hygiene, Symrise serves the needs of everyday life, especially in these difficult times.
The Flavor segment
Flavor achieved organic growth of 0.6 % in the period under review. Taking currency translation effects into account, segment sales in the reporting currency amounted to € 636 million (H1 2019: € 637 million). Against the backdrop of the coronavirus pandemic, the trend toward cooking and eating at home led to a strong demand for products from the Savory business unit and product solutions for baked goods and cereals. At the same time, reduced out-of-home eating and drinking led to a lower demand for beverage products and sweets.
In the EAME region, the Flavor segment suffered from significantly reduced demand for beverage products and sweets, while the Savory business unit recorded a high single-digit growth rate. Germany and the Gulf region achieved the strongest gains. Overall, sales in the EAME region remained slightly below the figure for the first half of 2019.
Organic sales in North America were roughly on par with the same period of the previous year. While Savory product solutions enjoyed great demand, beverage products and sweets sold less.
The Asia/Pacific region reported organic growth in the single-digit percentage range, driven primarily by very strong demand for products from the Savory business unit, which showed organic growth in the double-digit percentage range. The largest increases came from the national markets of Indonesia, Thailand, Vietnam and Singapore.
The Latin America region achieved the strongest growth in the segment in the first half of 2020 and was largely unaffected by the coronavirus pandemic. All business units realized high organic growth in the single or double-digit percentage range. Strong gains were posted especially in the national markets of Brazil, Uruguay and Mexico.
The EBITDA of the Flavor segment was up 2.2 % to € 147 million (H1 2019: € 144 million). The EBITDA margin improved from 22.6 % in the first half of 2019 to a very strong 23.2 %, mainly due to tight control on costs and proportionally lower raw materials costs.
The Nutrition segment
Nutrition achieved strong organic growth of 10.5 %. Accounting for portfolio and currency translation effects, sales in the reporting currency amounted to € 474 million and were 38.1 % above the previous year’s level (H1 2019: € 343 million). ADF/IDF contributed sales of € 106 million.
The Pet Food business unit proved to be the growth driver of the segment, achieving high organic growth in the double-digit percentage range in all regions. Sales developed particularly dynamically in the USA, Mexico, Brazil and Russia.
In the Food business unit, the Asia/Pacific region stood out with double-digit growth, especially in China, India and Taiwan. In the EAME region, sales matched the previous year’s level, while North and Latin America dropped slightly below the last year.
Strong impetus came from the Aqua business unit, which achieved good growth especially in the EAME and Asia/Pacific regions.
Probi reported growth in the single-digit percentage range during the reporting period, primarily driven by the North America and Asia/Pacific regions.
The Nutrition segment generated an EBITDA of € 100 million in the reporting period (H1 2019 EBITDA(N): € 67 million). The EBITDA margin in the segment increased by 1.5 percentage points to 21.0 % (EBITDA(N) margin H1 2019: 19.5 %). The improved profitability is mainly due to the good performance of Pet Food and the inclusion of ADF/IDF.
Also within the challenging environment dominated by the coronavirus pandemic, Symrise was highly profitable in the first half of 2020. The Group recorded EBITDA of € 393 million. This represents an increase of 11.9 % over the same period a year earlier. This trend relates primarily to profitable sales growth and the inclusion of ADF/IDF. The EBITDA margin improved by 0.8 percentage points to 21.6 % (EBITDA(N) H1 2019: 20.8 %).
Net income for the period and earnings per share
Net income for the reporting period amounted to € 169 million, which was € 16 million above the normalized figure from the previous year of € 153 million. Basic earnings per share increased 10 % to € 1.25 after € 1.14 (normalized) in the first half of the previous year.
Cash flow from operating activities
The cash flow from operating activities for the first half of 2020 of € 219 million was € 78 million higher than the previous year’s level of € 141 million. The increase is mainly due to the improved operating result and the inclusion of ADF/IDF.
Net debt increased by € 28 million to € 1,645 million compared to the reporting date of 31 December 2019. The ratio of net debt including lease liabilities to EBITDA(N) thus amounted to 2.2. Including pension obligations and lease liabilities, net debt equaled € 2,261 million, which corresponds to a ratio of net debt to EBITDA(N) of 3.0.
Symrise remains confident about the current fiscal year and raises EBITDA margin target
With its global presence, a steadily growing and diversified portfolio and broad customer base, Symrise considers itself to be robust and securely positioned even in the current challenging market environment. The Group is fully operational worldwide and is able to supply customers sustainably.
Even though the effects of the pandemic can only be estimated to a limited extent, the Group remains confident that it will again grow faster than the relevant market over the remainder of the year. The market growth is estimated to be around 3 to 4 %. Symrise considers itself to be well positioned to achieve the sales targets confirmed at the beginning of 2020.
Based on the strong business performance and profitability trend in the first half of the year, the Group is raising its original target of over 20 % for the EBITDA margin. For the 2020 fiscal year, Symrise now expects an EBITDA margin in the range of 21 to 22 %.
The mediumterm targets also remain in effect. The company aims to increase its annual sales to € 5.5 to € 6.0 billion by the end of the 2025 fiscal year. Symrise wants to achieve this with an annual organic growth of 5 to 7 % (CAGR) as well as additional targeted acquisitions. In the medium term, profitability should remain within a target corridor of 20 to 23 %.