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Edited Transcript of G1A.DE earnings conference call or presentation 14-Mar-19 1:30pm GMT

Full Year 2018 GEA Group AG Earnings Call

Frankfurt am Main Mar 20, 2019 (Thomson StreetEvents) -- Edited Transcript of GEA Group AG earnings conference call or presentation Thursday, March 14, 2019 at 1:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Fabian Kirchmann

* Helmut Schmale

GEA Group Aktiengesellschaft - CFO

* Stefan Klebert

GEA Group Aktiengesellschaft - Chairman of the Executive Board & CEO

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Conference Call Participants

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* Hans-Joachim Heimbuerger

Kepler Cheuvreux, Research Division - Equity Research Analyst

* Jack O'Brien

Goldman Sachs Group Inc., Research Division - Equity Analyst

* Joerg-Andre Finke

HSBC, Research Division - Head of Equity Research Germany and Analyst

* Klas Henrik Bergelind

Citigroup Inc, Research Division - Director

* Lars Wauvert Brorson

Barclays Bank PLC, Research Division - Director

* Lucie Anne Lise Carrier

Morgan Stanley, Research Division - Executive Director

* Max Yates

Crédit Suisse AG, Research Division - Research Analyst

* Nika Zimmermann

Deutsche Bank AG, Research Division - Research Associate

* Peter Reilly

Jefferies LLC, Research Division - Head of Capital Goods of Equity Research

* Peter Rothenaicher

Baader-Helvea Equity Research - Analyst

* Sebastian Growe

Commerzbank AG, Research Division - Analyst

* Sebastian Ubert

Societe Generale Cross Asset Research - Equity Analyst

* Sven Weier

UBS Investment Bank, Research Division - Executive Director and Analyst

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Presentation

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Operator [1]

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Good afternoon, ladies and gentlemen, and thank you for standing by. Welcome to today's GEA Q4 2018 Earnings Call. (Operator Instructions) I also must advise this conference is being recorded today on Thursday the 14th of March 2019.

And now I would like to hand the conference over to your first speaker today, Mr. Kirchmann. Please go ahead sir.

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Fabian Kirchmann, [2]

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Good afternoon, welcome everybody to the GEA analyst conference on the 2018 earnings release this morning. Thank you very much for joining us here in Frankfurt despite the bad weather and also participants on the phone, welcome. And let me quickly introduce myself, my name is Fabian Kirchmann, I am the new interim Head of Investor Relations at GEA Group since March 1. So just a couple of days. And pleased to moderate this conference today, I have with me here on the podium our current CFO, Dr. Helmut Schmale, who will present the financial figures for 2018 and Q4 results. And our new CEO, Stefan Klebert, who will present the outlook for 2019 and an action plan for the next months. So yes, I would say after the presentations, of course, as you know that you have the possibility for questions. And -- so I would pass on to Stefan Klebert with a quick introduction. Thank you.

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Stefan Klebert, GEA Group Aktiengesellschaft - Chairman of the Executive Board & CEO [3]

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Thank you very much, Fabian, Ladies and gentlemen, welcome to the analyst conference of the GEA Group. It's a pleasure having you here, and I'm looking forward to present to you some ideas of the future after Helmut will present the 2018 figures. And I am also happy to answer your question later on. Before we -- before I hand over to Helmut, I would like to take the opportunity to familiarize yourself with the new structure of the executive board. As you heard I'm the new CEO, I'm now in my fourth week as CEO, so I started to take over this role mid of February as you know. And maybe some words to my background. I'm mechanical engineer before that I made a mechanical apprenticeship then later on I did an MBA in the U.K. First 8 years I spent in marketing and sales of -- with the Festo Group, Festo Company. And the last 20 years I worked with General Management tasks for -- in the industry, let's say, in machine building companies, Schindler, ThyssenKrupp, Schuler these are the names I've worked for.

And like I said, since 4 weeks now, I'm the proud new CEO of a great company, GEA. You also read that yesterday's supervisory board and Niels Erik Olsen made a mutual agreement that Niels is leaving the board, he actually left yesterday. And from today on I will take over his responsibility as board member for BA Solutions, in addition to my CEO role. And the board consists now out of 4 persons, not 5 anymore. And we will also remain 4 positions, 4 persons for the future. Because I think that's sufficient for the company, and I will tell you more later on about this reorganization. And what does it mean for the company?

I'd like to hand over now to Helmut, who is going to explain you the 2018 numbers.

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Helmut Schmale, GEA Group Aktiengesellschaft - CFO [4]

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Many thanks, Stefan. Welcome also from my end, welcome to our quarter 4 earnings call 2018. Let's go along the key figures first in the summary slides and then later on a bit of drilled down into the 2 business areas. As you see here the order intake was finally, at EUR 1,235,000,000 for the selective quarter, which was a reduction of about 6%, in organic sense even almost 7%. If we drill down into the industries what you find is that Dairy Farming, Dairy Processing and Chemicals of -- in the downbeat or in the downward trends. Dairy Farming, in particularly, was impacted by the business in North America. The growth drivers on the other side were the industries of food and beverage and the beverage industry. And particularly, at the very end of the year 2018 we've 2 large orders, which were awarded in December.

Sales climbed 3% to a new record level of EUR 1,373,000,000 for the fourth quarter and this was not only driven by acquisitions but you can see here also that it was an organic growth of about 1.6%. The -- what I can add here is that the custom -- customer industry food and basket of our industries were quite positive and contributing to that development. However, on the other hand Dairy Processing continued to decline.

The operating EBITDA finally was, I have to say, only EUR 181 million that is the lowest result for the fourth quarter since quite a while, I would say. If we look into the details which we do later on you will find out the BA Equipment was broadly stable. Thus the decline on group level came mainly from the Business Area Solutions. The cash flow driver finally, came in with about 6.8% in the range likely have expected at the very end of the year.

If you then turn to the full year 2018, so the order intake grew 3.5% and sales did as well with plus 4%, both key numbers as well as key figures were also growing in an adjusted or in an organic view. So I need to push forward here the slides. And if you then go into further details you would find out that almost all product groups and applications grew in the year 2018 with 2 exceptions. The Dairy Processing business and the utilities business. The operating EBITDA finally, was than EUR 580 million, which is, however, reduction against prior year of about 8%. And the EBITDA margin went down to 10.7%.

Let's go into some more details. The Business Area Equipment reported an order intake for the last quarter of EUR 649 million, down by about 3% organically, even 5%. And this however -- is -- this -- I have to add however, a tough comparison to the prior year quarter 4, as this was a quite good quarterly order intake in that quarter 4 2017 for the Business Area Equipment.

From a customer industry point of view, it was still difficult in the Dairy Farming, which trended weaker in the single quarter.

And that was in particular the case in North America but also a weaker development, which we have seen in the European countries. If -- what I would like to add here is at the very end in the year we awarded 2 large project for the Business Area Equipment of about EUR 22 million for Chemical application, which is in size rather unusual for Business Area Equipment.

Turning to the Business Area Solutions, the order intake then was EUR 654 million for the single quarter down 8.8% over prior years' quarter 4. And the customer industry Pharma, especially beverages based on these large 2 orders, which I mentioned already developed quite positively while Dairy Processing and the Chemical industry, we're somewhat down compared to last year's reporting periods.

In sales, we achieved, as I said previously, a 3.1% growth over quarter 4. Driven by recent growth of almost 8% our Business Area Equipment, whereas the Business Area Solutions stayed flattish in the year-on-year comparison. And again, food was a growth driver here especially at the Business Area Equipment by the full year consolidation of Pavan, which also added here nicely to the quarter 4 sales. The operating EBITDA declined unfortunately from EUR 224 million to EUR 181 million only for the single quarter.

And this represents a decline in the profitability of 365 basis points to 13.2%. If you then go into the details you would find out that the Business Area Equipment was almost stable, the profitability here is only down EUR 3 million. What we saw is a positive contribution from additional volume. However, what we also experienced was negative margin mix impact, which was going against that and that also impacted our -- or that was also impacted by the fact that their service business had a lower share in the quarter 4 compared to year before.

And what I need to add is at the end of the year, finally, the expected increase from our pricing initiative did not turn out as we have expected it for the last quarter. Business Area Solutions that is the main reduction which we see in terms of EBITDA that was largely or that was resulted from a drop in the gross margin of about EUR 8 million from the Dairy industry. As well as I have to say an increase in overheads of about EUR 11 million. We have a couple of other close-out items at year-end, we then finally, saw the reduction of the result of EUR 29 million, which brought up essentially down the profitably of the BA Solutions to 7.4% EBITDA margin for the fourth quarter. Here again, the yearly perspective for the full year 2018, order intake and sales developed quite well, again different in the 2 business areas, Business Area Equipment was up in order intake by about 7% in sales by even more than 10%.

And as I said, it's a well beginning already, almost all product groups and applications contributed to that growth in the sales volume with the exception of dairy and utilities. The operational EBITDA then finally, was EUR 518 million, 8% reduction year-on-year. But it stayed then in the range of the final year adjustment guidance, which we have given with our ad-hoc release.

Now let's turn to some more granularities here on the industries in terms of order intake and sales. In summary, what you can observe here is that the Dairy Farming business goes down again, fell again just below the average for the Group and Dairy Processing even more so is declining and lost a bit momentum again, in the quarter 4 in order intake compared to the quarter 2 and quarter 3. Beverages is peaking here, while sales still remains a bit weak. What you see here is on the other hand that's the order intake recovered and that has to do -- and as I said with the 2 larger orders, which we were awarded to in December 2018 in North America, and the order intake for beverages is now almost on leverage is the highest one since 2015. Food grows now for quite some time, we have, however, in here all acquisitions like even Comas, Imaforni and last but not least also Pavan, which contributes to that very decent development. Looking at Pharma and Chemical industry it's, in general, I would say an upward trend over time however, you see some seasonalities in here and some volatility over the years.

Now this slide as usual offers more granular into the development of our order intake by regions and by industries. And this is based on the last 4 quarters evaluation, hence it seasons out a bit the volatilities, which you would find in the quarter-on-quarter development. To summarize that along the 2 dimensions, as of today in terms of geographies, we see that only DACH and Western Europe and Middle East Africa were falling below 1, so that does mean the order intake was somewhat lower compared to the sales level, which we had.

On the other hand, we see that we have quite decent development in Asia Pacific, which has to do largely with China, where we saw a lot of business from food processing, separation, the beverage industry, which contributed to that very good development of the Asian-Pacific region.

In an industry view in Dairy Processing we were awarded some larger orders in particular, in the Nordics in NCE, which brought up here the book-to-bill ratio to 1.26 as you find here on the graph. And on -- and then if you look further down into the industry, as you see that we have only the food, the chemical and the oil and gas business, which actually stays below 1 with regards to the book-to-bill ratio. As usual than the lower box just offers you the rates of the cost sections, which are in review here.

Working capital, yes, at the end of the year we finally, managed the working capital to come down to EUR 747 million, which is end of period, a percentage of 15.5% over sales. And however, you'll see also that the average working capital as in last 4 quarter average still climbed up to 16.9% based on the effect that we had a steep increase in the working capital in the course of the year 2018.

Now to give you some more granularity here on the details of the working capital. The sequential reduction of inventories is related by a large to both business areas. So that is very decent development, and what I would like to add here in particular is that you see that the POC receivables have reduced by EUR 112 million in the quarter-on-quarter development, which is largely or by in large value originated from the Business Area Solutions.

The year-on-year increase in inventories of about EUR 80 million is related to our Business Area Equipment against background of good backlog, which we have there. A lot of factory load, which we see in our large factories and also a bit of from the acquisition of Pavan.

The cash flow driver margin finally fell to 4.4% in the not adjusted and 6.8% in an adjusted view and this represents the lowest level since a couple of years. What do you find here is that at the end of the swing in working capital, which is a cash drainer for us of more than EUR 80 million in that last 4 quarter perspective, has reduced our cash flow driver by about EUR 84 million. We had a bit of elevated CapEx level with EUR 136 million in the year 2018. And last but not least, of course, the low EBITDA of the very last quarter 2018 has reduced the cash flow driver to the low level of only 6.8%. This is the usual view into the liquidity bridge, what you see here is that net liquidity for GEA, at the end of the day I would say is almost break even, so we are at minus EUR 72 million. If you take out the very special elements like the dividend payout or the remainder of the share buyback then you would see that the operational cash flow generation for the Group finally was EUR 256 million. If you strip out for a moment the payouts for the strategic project be at OpEx or CapEx, which we have of course financed with the development of our cash flow here. So this EUR 256 million is something, which you would expect here to be able to deliver if you compared also with historical development, which we have seen.

Service Business finally, ended with 31% as percent of total sales. This is -- the Service Business has grown by about 5% in the reported terms and by about 6% in organic view. Mind the fact that the share for the Service Businesses for our Business Area Equipment is little bit lower compared to prior year. Based on the fact that new machine business was going faster than the Service Business. And also based on the fact that the Service Business of our newly acquired company Pavan is still below what we in average see on GEA level. Now let's turn then to the outlook 2019, and here I would like to hand back to Stefan.

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Stefan Klebert, GEA Group Aktiengesellschaft - Chairman of the Executive Board & CEO [5]

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Thank you very much, Helmut. So this was Helmut's last conference with analyst. He will still be with us until mid-May. But I also would like to take the opportunity to introduce to you Marcus Ketter. Marcus Ketter will be our incoming CFO. He will join us 20th of May. I know Marcus personally. We worked already together in various companies. He is a very experienced CFO, coming from Klöckner now, he has a lot of background also in the machinery industry. And what I really also want to mention and stress that Marcus is very keen and very good in IT issues.

So he also was heading IT departments. And this is some of the big focuses in GEA where we need to do something. And therefore I think and I believe that Marcus will a great team member also here in GEA.

As you know I started mid of November being a member of the board of GEA, and I used this time extensively to really travel around the GEA world. I was in 10 countries. I visited more than 30 sites. I spoke to lot of customers and to hundreds of employees. And at the end I got very, very good impression, I would say, about the company, about the strengths, about the weaknesses. And I also have to say a lot of comments from you, from this community was very helpful for me. Thanks also for that. Because I also see and saw that you are really familiar with this company. But what are my findings? I can say, GEA is really a great company with a very healthy core. And GEA has very good positions, in 2/3s of its markets we are #1 or #2.

We have a very high share of Service Business for a machine-building company of more than 30% and service is always interesting because of the higher margin. And we have really good technology. We have also despite a high fluctuation rate in the past, we still have a lot of very skilled and very motivated people. And I also can say that they are waiting for change and that they're also looking forward now to all the things we do. So I think all having this in mind the core is really good. We have a good balance sheet, we are not ill company. GEA is really a great company with a good core and has a lot of more potential.

Now but if you look at the top line, you also know this during the last years you see that it is rather flat or only a small increase. If you take out the acquisitions and at the same time margins are going down and profitability is decreasing. And this is mainly caused by internal issues and internal problems from my point of view. This is the good side, let's say, or the positive message that it is not so difficult to identify where the problems are. And I tried to explain you later what are the measures we will take and what are we going to do to get the full potential out of this company.

So as I said very good end markets, very enthusiastic customers, customers like GEA. They appreciate our technology, they appreciate what our people are doing. And this is a very important, very good thing, and we also think we are in markets, which has a -- have a good future and growth opportunities. However, we have some issues mainly these are this 6 issues, which you can see on the right side of this chart. It's about responsibility, it's about internal responsibility. At the moment there are only 2 people beside me, or now I have to say 2 people with me who bear P&L responsibility. It's only allocated to the Business Area Equipment and Business Area Solutions. But you will not find anybody below this levels, who really have a clear P&L responsibility, which is for this big company issue.

Then it's about transparency due to the fact that there is a pure functional organization, it is very, very difficult to get out a reliable numbers, which could be managed and the combination of having this rather intransparent situation, with not really finding people who feel at the end really responsible creates the kind of not ideal situation, let me say in that way. Procurement, portfolio, IT structure and production are other topics. But let's start with the first issue. You know that the current setup is Business Area Equipment, Business Area Solutions, which are somehow a conglomerate of different industries, different segments. Therefore, it's also for you not possible to really allocate competitors exactly to one of those business areas. And for us it's also kind of artificial separation because in Solution it's not only about this big project businesses, there are some project businesses, but we also have very pure machinery business in the Solution area, while we also have projects in Equipment.

So this is something, which we will not keep, we will change that. And we will go to a divisional structure. So we will have in the future 3, 4, 5, 6, I do not know yet, divisions which will then be very clear and very focused on markets or technologies. Therefore, it might also be much easier for you to allocate a clear peer group to these divisions. And you will also, of course, get more information because we will not only report to conglomerate with a lot of different industries and segments. So I think, that is much better for you and this is much better for us as a company because we can much better control and organize the business.

Yes, this is some think we are already working on. We started with 60 top managers 2 weeks ago in a kickoff. And I also can tell you that almost everybody thinks that this is the right move now. There is not really that, that there is a big misunderstanding. Everybody wants to go in that direction, and we will combine the good things from OneGEA we will keep, which is especially the OneGEA organization in 1 country that we have a kind of GEA home, a GEA organization that we don't have various legal entities, which has nothing to do with each other in all the countries.

We have a GEA home, a GEA casa, however, you want to name it. I think it's a very typical organizational set up for a lot of industry companies similar like -- than GEA. And we will now work out this structure with the internal team. I also want to mention that I think that's very clear, we have all the knowledge, which we need to find out how it should look like. And we will come out with this new organizational setup end of June. That's the plan and the promise.

Next topic is transparency. I mean, the most horrible thing for you, I think, was the profit warning from the past that we had 7 profit warnings in a row, which is definitely unacceptable. And this was also caused, I would say, by lack of transparency, which we had in the company. And this will something be what we change. And by changing to this divisional organization, it will be very quickly better and easier to get financial transparency back because a division will be at the end, a simple addition or collection of legal entities. So there is no need anymore to cute the whole company lengths and find out, which numbers belong to each other. And how to add that up.

So this might be much easier, and we expect that we can get a much higher transparency within some months. We will also change the KPIs. You know that GEA reported in the past, so called, operational EBITDA and always we excluded strategic, so called, strategic project, which was a kind of not so clear definition, let's say. So we will report EBITDA as reported all-in excluding restructuring costs if we will have some of them. That's also I would say something, which makes it easier to understand, what's going on in the company. And we hope that we also can make your job easier by doing so. The second KPI, we will not guide and report anymore the cash flow driver margin, because we also found out that only a very few companies are doing so. So we will go to ROCE, ROCE is in this industry a very common KPI as you know and this is what we are going to report. So we start with a new KPI set with a Q1 figures, which will come out and this is our new KPI set.

So what else is plan to do? Let me give you some insights about the purchasing organization nowadays. We have about 18,600 employees, but we have more than 25,000 suppliers. This is a lot and are even if GEA is a huge purchaser or let's say our purchasing volume is about EUR 2.5 billion, which is at the end about 50% of our turnover, so you see the importance of a good and professional purchasing organization. I think, this is very clear that this is not best-in-class and that there is a lot of improvement, which is possible. And also important information might be for you that nowadays we have 3 different purchasing organization in 3 different areas of responsibility that means we have a purchasing department in the BA Equipment. We have a purchasing organization in BA Solutions and we have a purchasing organization in regions and countries. And this makes no sense and we will bring that all together, we will align it. And I think that there is some potential, which will help to improve the profitability of GEA. Yes, this is something we will work out in details. We will give you a first taste in June when we inform you about the new organizational setup. We will say in more detail how the organization will work, how the setup will be and at the Capital Market Day, which we will do immediately after summer break that means in September.

We will also come up with some numbers and some clear facts what we expect to be able to save in that department. Portfolio is an issue you know that GEA is a company with a lot of businesses and that's -- that has a lot of good points to be honest because it also covers some volatility in different markets, which gives us stability. And I think if we open up more transparency, go into this divisional set up, that you can also see what's going on, you can also see, which businesses are likely to grow, where might be more flat for the next 1 or 2 years or whatever that will be something, which can be handled much better.

And once we have set up the divisions, we of course will check the portfolio, and we will see what really is core of GEA and if there are things, which we might not have forever. We do not expect that they're very big changes, to be honest, but I think there might be some areas where we can make it clearer and better -- yes, better to manage also. We also said clearly that from now on we make a stop of acquisitions, it makes no sense to do acquisitions at the moment or to look at other companies as long as we have lot of homework to do.

So this is what we are going to do now. In the medium to long term, I see GEA as a perfect company for acquisitions because we have a safe balance sheet, a strong balance sheet. We have a -- let's say, that the power to make acquisitions but it's not the right time at the moment to do so. And therefore, it's a clear statement also that we don't want to do any acquisition for the time being. IT, with the change to OneGEA organization, the company started with outsourcing of various processes in HR, in financing, in IT, and of course, a lot of this makes sense. But due to the fact that we have more than 100 ERP systems, this thing is more tricky and more difficult as may be expected. So we have now to cope with that somehow and we have to handle that. The most important issue is the IT first level support. We have an external partner and I already started to set up a working group. I'm personally chairing this working group. I also have the every month now a steering committee meeting with the CEO of this external partner that we help together and that we see how we make it better.

At the moment it's for our people sometimes, very frustrating sitting for the computer, it does not work. And they have to spend sometimes -- some days until the tool is working again and this is not acceptable. And this of course causes frustration and cost, and this is something we need to change immediately. And to accelerate that we also made a decision to recruit 50 additional IT specialists worldwide, some of them already joined us and this will help us to get our people back to work, let's say, not to give you completely wrong impression. But you might imagine or you also note that you might have sometimes problems with your PC in your company and then of course you expect that somebody is coming to help you and support you, and this is what also our people can expect. Of course, the ERP landscape is a very fragmented one, GEA has a legacy, has a history and this is coming from the history. But we have to address that. I think I know, that this topic is not new for you. But I am quite convinced that we can really speed this development up.

But I also have to say it might be a 3- to 5-years journey until we have the ERP system aligned. And we will also give you a clear update to this issue and the clear roadmap, including investments and costs and benefits we expect out of this harmonization of ERP system. But I can tell you very clearly that we will not continue with 100 different ERP systems.

Then let's talk about the production footprint. We have a lot of production units that's also explainable from the past because GEA is a conglomerate of a lot of medium-size companies as you know. And we have 80% of production nowadays in Europe, while we only have 36% of the business in Europe. This is something we need to adapt, we need to change it. There's is no need that it is exactly equal production and sales because having production in Germany, in Europe is also sometimes a competitive advantage because it's quality, it's a kind of thing where you get better prices also for customers. But it's definitely not balanced at the moment so we will think about that, we will reduce the number of production units. And we will find ways to shift it more in low cost countries and in countries where our customers are. This is also necessary.

But I also have to say this also will be 3- to 5-years journey minimum because if you compare our business with some other companies who are doing mass production, it's a different issue. If you mass production, if you have standardized product, it's quite easy to move production from one country to another. If you are in a business like GEA is, where we have a lot of customer adaptations, where we have a lot of machinery, which are customized, where always engineering is involved, it is not so easy and you have to have a certain level of quality in the processes of engineering, of purchasing and assembly documentation that it works at the end and this is must before you split up production from engineering. So this will be also something where we cannot expect quick impacts, but in the medium to long term this is an important issue.

So all in all this is the journey 2019. We start today with the analyst meeting or with the press conference, with some immediate measures. I think, the most important thing is now to really adapt the organization to more entrepreneurial organization, to bring really good people, which we have in the company back to clear P&L responsibility. And that they can not only manage P&L, they also can manage then later also net working capital, which is now a day almost impossible to get managed. And this are also very -- I think those are very, very important issues.

And it doesn't seems to be so difficult. We're also having a lot of senior managers who are really encouraged to do but it's not that I'm pressing all these things in. So we will change that. And I think that we can become better when we change the organization.

We also started the task force for the first level. IT support, we will improve the issues with the outsourcing processes and this is also important. Besides that, we made some personnel changes. I think, that's also important and also a clear signal to the company. And it is not only that we changed the -- or made change on board level we also made further changes in the BA Solutions. So we also change, for instance, the Head of the APC Dairy and the head of the APCs as well. So we have now new team and I put in place internal people from -- internal people, which I think they have a good track record. And they are coping about the issues. And I hope and I think that we can see also a turnaround in due time.

Then Q1 figures, in May as said, we have a new clear KPI structure, with all-in EBITDA before restructuring cost, if we have so we will announce that and make it clear and the ROCE. And in June, end of June we will give you an update about the organizational setup and about people and about how many divisions and what kind of divisions so that you really can also check and see how you can model it in the future. And after the summer break we will come with a Capital Market Day, where we are -- where we will bring more, let's say, more meat to the bone to all the things, which I've promised you here. I want to mention again, as you know, I'm now since almost 4 weeks, CEO and therefore I hope that you understand that I cannot give you all the numbers here. And you also have to see and to consider that our new CEO (sic) [CFO], which is a part of this change process will join end of May. And therefore, it is I think still a challenging time plan but I want to rather take 1 or 2 more weeks and come out with numbers you can trust. Then doing any quick shot, which is not reliable at the end.

So all in all, GEA, once again, it's a great company. I'm really, very, very happy to join the company. I think there is a lot of potential. I think we have really good people, we have good technology, we have a great brand. All this is a very, very healthy core, and investing in GEA is something, which I think is very reasonable. You also might know that I also invested quite a reasonable number. I also invested a seven-digit number before I started in GEA because I trust in GEA. And I think there is a good potential. We identified the problems. It has nothing to do with, or only very limited things to do with, outside forces. I would say the majority of the issues to improve profitability are laying in our hands. I think, the problems are identified. Some of them will be easier to change, some of them might take some years that's also clear. And need some more time.

About the company I would say has a good potential and I'm optimistic for the future.

So now let's close my speech with the guidance of the full year 2019, which is more or less -- or which is actually the same like we announced as an early indication in the talk, which was released at end of January. So we expect a revenue, which is slightly or moderately below the previous year level. You know that at the moment we have a lot of economic things, which are going around. We have the trade war between China and U.S. We have the Brexit or no Brexit, we will see. There's a lot of things, a lot of issues are going on. And economy was much more bullish last year or the year before last year. I think that's a situation in which we are in. And therefore, we expect -- and if you also remember the numbers Helmut showed before the order intake solved in the fourth quarter. I think this is what we can reasonably expect. We expect EBITDA all-in before restructuring costs of EUR 450 million to EUR 490 million. This is the number with correspondence to the EUR 440 million, EUR 480 million we announced in the last talk. And the change is simply because we have now integrated all the strategic projects, and we have, of course, a positive impact from the IFRS '16 effect.

Then it comes to the ROCE, that's a new guidance for us. ROCE is what we expect, it's based on the budget you can see, you've the guidance you can see with the EBITDA. And with the corresponding capital employed we expect to end up somewhere between 8.5% and 10.5%. Yes, here you can see that the bridge again, of the how do we come from EUR 580 million to the guidance. We have the IFRS '16 effect we have the strategic project. And we have some nonrecurring earnings, which we have mentioned in the operative income. So we have a pro forma EBITDA. But we have to know and you have to know that we have, of course, a lot of cost increase, which are for sure in 2019 apart from personal expenses, which we cannot change anymore. And of course, we already planned some savings. But I have to say, 2019 will be a year of transition, a year of change for GEA. So we first have to now change the organization, adapt the organization, bring people to different areas of responsibility and really touch base.

Maybe also some information about the definition of the ROCE. You know that there are different definitions, usual many of our competitors exclude the PPA effect. So we include the PPA -- the PPA effect. Therefore, if you compare our ROCE with some of our competitors, you should add maybe -- approximately 1 percentage to come up with the same number. We think that this is the right definition because at the end it is like it is and the purchase price allocation is something, which we cannot deny. Yes, this is again the definition you can find or you can see and you can also check it later on.

Let me close with the financial calendar. So 26 of April we will have the shareholders meeting of the 2018 year and May 10 you will have the first -- the numbers of the first border with the new KPIs. And 6 of April (sic) [6 of August] we will have the quarterly financial report available, and in October -- sorry August 6 the quarterly for the second quarter and end of October then for the period to September, there are 3 quarters. Yes, that's it from my point of view. Thank you.

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Questions and Answers

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Fabian Kirchmann, [1]

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Thank you. So let's go ahead with Q&A. We will start with Q&A in the room, and then switch to the if there are questions from the telephone. So let's start right ahead.

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Sebastian Growe, Commerzbank AG, Research Division - Analyst [2]

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Sebastian Growe from Commerzbank. It's 2 on the future set up. The new design does clearly foresee a new segment reporting structure and a certain reversal I think of the outsourcing trend more to an insourcing trend. You mentioned, for example, the hiring of IT staff, et cetera. Shouldn't we be concerned that you might lose some of the gains on the gross margin side because you simply are enforcing people to take greater care of taking the right prices? And by at the same time increasing the OpEx level structurally through that segment change?

The second question that I have is on the assessment around the sales versus bottom line problem. If I look at the organic order growth and it was 2% in 2018 you see cost inflation on the wages side. So my question simply is, how do you enforce sales growth going forward and top line growth? And at the same time wouldn't it be counterintuitive to assume that where you hold people liable for obviously committing mistakes eventually or not delivering, not performing and that was eventually a bit different in the past that people are not so much open simply to be risk takers and go for greater volumes going forward?

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Stefan Klebert, GEA Group Aktiengesellschaft - Chairman of the Executive Board & CEO [3]

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Well, let's start with the organizational set up. I mean the big issue at the moment is, as I said, that it is very, very difficult to allocate responsibility. And a conglomerate with the size of GEA is almost impossible to manage. I would say, if at the end is nobody really responsible. So we have reached an in-country organization, selling something. But at the end the result is somewhere else and this is, I would say, causing issues. And at the end, everything in a company, I would say, normally you have a P&L responsibility is always sometimes, let's say, contraproductive to synergies. So and you have to make some decisions if you are going for pure P&L responsibility, you might accept that some things are doubled or the wheel is invented twice in the company. But you have somebody really managing it and being clearly responsible. So it will be coming back to the divisions. It will be much more clear responsibility. But if it comes to production and in purchasing, as I said, this is a key function in terms of costs and therefore this will be aligned. And there will be also organization, which is really making sure that we can use synergies.

And sales growth is a same issue. Let's say, at the moment, we have an organization they need to grow somehow but nobody, let's say, is really pushing the various businesses. So it's about top line but it doesn't matter if it is a separator if it is a utility project or it's dairy project. And therefore, it's again about clear responsibility. So I'm a strong believer in this divisional setup. That's also an organization I think a lot of similar companies are organized like that. And I'm believing in entrepreneurship and that we can get the best out of the company if we have 50, 60, 100 entrepreneurs managing really businesses.

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Joerg-Andre Finke, HSBC, Research Division - Head of Equity Research Germany and Analyst [4]

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Andre Finke from HSBC. A few questions from my side as well. First one is on the procurement initiative, as you said, so there was similar initiative I think highlighted at the Capital Markets Day 2016 in quite detail. So your initial assessment on the past 2.5 years what went wrong? And what could be conducted differently? And if I remember correctly previous management indicated that the gross savings from procurement might be at least to a large extent reinvested in pricing and volume, what's your take on that? Because I think you said in the speech that you think that is a measure to improve profitability and not only volume, so that will be my first question, and I have a few more.

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Stefan Klebert, GEA Group Aktiengesellschaft - Chairman of the Executive Board & CEO [5]

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Yes. Good question. I mean I do not want and I also cannot judge what's wrong in the past or not ideal or whatever. But if you look at the numbers, if you think about that nowadays we have 25,000 suppliers, that's by far too many and also if you might -- if you see that we have 3 different purchasing organizations that is at the end not ideal. And I also made some checks. The most easiest thing is for me always to check Festo prices because I spent my first 8 years in working life with Festo in marketing and sales. I know very well how Festo is selling and what the methods are and if I check that then I can see somehow advertise an indication. And therefore, I can tell you that this is something where we have opportunities for improvement. I will make sure that we have organization where we have -- can align all these things. But I also have to ask you for giving me some more time to really bring numbers behind that issues. But looking at the numbers 3 different organizational departments, 3 different purchasing organizations and 3 different board members' allocations and having 25,000 suppliers, it should be very surprisingly there is not a potential.

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Joerg-Andre Finke, HSBC, Research Division - Head of Equity Research Germany and Analyst [6]

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And you would expect net savings from procurement savings down to the EBIT line?

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Stefan Klebert, GEA Group Aktiengesellschaft - Chairman of the Executive Board & CEO [7]

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What?

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Joerg-Andre Finke, HSBC, Research Division - Head of Equity Research Germany and Analyst [8]

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You would expect net savings out of procurement savings?

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Stefan Klebert, GEA Group Aktiengesellschaft - Chairman of the Executive Board & CEO [9]

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Yes, clearly, clearly otherwise we are doing something wrong. I mean that's also a question of how you make -- how you then make your calculations. If all the calculations are based on cost estimate instead of price list, for instance. There is a big risk that all the purchasing savings are going away to customers. This is something we have to avoid. But this is, I would say, also manageable.

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Joerg-Andre Finke, HSBC, Research Division - Head of Equity Research Germany and Analyst [10]

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And my second question relates to the IT harmonization, which also has been a topic in the past already. I was just surprised to see the number of 100 ERP systems again because I think that was the starting point from 3 years ago and there was some indications in between that we went below 80 or something. So just wondering what you think on what happened over the past 2, 3 years there as well? And what could change in the next 3 to 5 years?

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Stefan Klebert, GEA Group Aktiengesellschaft - Chairman of the Executive Board & CEO [11]

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I mean, as I said, it's for me difficult to value the past or to talk or to speak about that. But it's -- these are the numbers I got and I found out and this is something where we have to tackle it. And I made this journey in various companies in the past where I worked, I've went through this journey twice already in harmonizing ERP systems. It's long journey, it takes 3 to 5 years but at the end it's much more effective in a lot of aspects. I mean just to give you one indication or one taste we spend also this year really millions in simply fulfilling the legal need to fulfill the data protection how do you say in English (foreign language). The European data protection regulation. Because the first thing, which you have to do in any company is you have to create a kind of list on which systems, in which software, which personal data is stored. So think about the complexity we have and this is really a big, big thing. If you have one ERP system, these are things where you can also save a lot of money and these are some examples, let's say.

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Joerg-Andre Finke, HSBC, Research Division - Head of Equity Research Germany and Analyst [12]

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And third question relates to your comments on the portfolio review. You said you wouldn't expect any big changes, which surprised me, why is that? Sort of statement at this stage already that you wouldn't expect any big changes to the portfolio structure at the moment? And would you consider taking input on that from your large shareholders or larger shareholders in the process?

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Stefan Klebert, GEA Group Aktiengesellschaft - Chairman of the Executive Board & CEO [13]

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I mean, as I said, I cannot tell you yet how the portfolio discussion will end up. But I think GEA is, generally speaking, in good markets. There might be markets, which we will define at really core core or core. There might be markets where we will say this might not be a business, which stays forever but where we might see potential for improvement of margins in the next 1, 2 years. And therefore we have to think about what we do and how we cope with that. But as I said again, give me some more time. It's -- after 4 weeks it would be very quick to make significant portfolio decisions.

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Joerg-Andre Finke, HSBC, Research Division - Head of Equity Research Germany and Analyst [14]

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And my last question is just a technical one on IFRS 16. You said EUR 59 million EBITDA tailwind and the ROCE bridge correct me that's a EUR 56 million D&A impact from IFRS 16 so what would be the interest charge on the top of it, so what will be the EBIT impact?

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Helmut Schmale, GEA Group Aktiengesellschaft - CFO [15]

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At the end of the day the impact on the EBIT level is much less than that. There you will then find only an impact of let's say about EUR 3 million, EUR 4 million, EUR 5 million that is in the impact.

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Joerg-Andre Finke, HSBC, Research Division - Head of Equity Research Germany and Analyst [16]

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There will be additional interest charges on the back of it?

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Stefan Klebert, GEA Group Aktiengesellschaft - Chairman of the Executive Board & CEO [17]

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Sorry?

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Joerg-Andre Finke, HSBC, Research Division - Head of Equity Research Germany and Analyst [18]

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There will be interest expenses on...

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Stefan Klebert, GEA Group Aktiengesellschaft - Chairman of the Executive Board & CEO [19]

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You change the expense line with the D&A line so it...

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Joerg-Andre Finke, HSBC, Research Division - Head of Equity Research Germany and Analyst [20]

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So no interest expense, okay.

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Jack O'Brien, Goldman Sachs Group Inc., Research Division - Equity Analyst [21]

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It's Jack O'Brien from Goldman Sachs. So the first question I've got is on the 2019 guidance. Obviously it was set before you arrived, Stefan. And clearly, I think credibility in previous guidance has been pretty limited given what's happened. So are you still comfortable with the guidance that was given? Simplistically, if I look at 2018, we saw and you strip out the nonrecurring operating income, you saw adjusted EBITDA down about EUR 70 million to EUR 495 million in an environment where sales growth was about 5%. And in 2019 we're expecting sales down with still cost inflation, wages high, unemployment very low across Europe. So you could envisage a scenario where you have less operating leverage still cost inflation. And I guess EUR 70 million off EUR 495 million is EUR 425 million, which would be quite below your lower end. So I just want to double check you're happy with the guidance that was given by the previous management?

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Helmut Schmale, GEA Group Aktiengesellschaft - CFO [22]

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Yes, thanks for your question. At the end of the day what we see is that we have a little bit less sales in the year 2019, which gives you a little bit of negative leverage, by about let's say 30% on the then lower sales volume. What we have in mind that we will see a cost inflation of about, let's say, EUR 40 million so simply from the increase of the personnel expenses. And that we also see some additional cost coming from the buckets like the additional IT costs, which we are planning for. So at the end of the day what you then need to earn in order to come up to our guidance level of, let's say, the midpoint of EUR 470 million is some cost savings or margin increase that you need to account for an increase in gross profit or gross margin as we have planned for in the budget. Now the question of yourself looking forward into the near-term future I mean we have deliberately taken a bit more cautious approach on the volume development. As we have seen in parts of our industries at least that it is more difficult I was mentioning, for example, the Milk and Dairy Farming business and we also taken the different approach with regard to how we are -- how we have done the budget for the year 2019. We have done that at the very beginning of the year 2019, which is very late in the cycle. Because we have done that in parallel to the closing procedure so we got the latest information of all of our sales in salesforce. However, as we have said if the world will collapse nobody is protected against but we have taken the best view we had at that point in time.

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Stefan Klebert, GEA Group Aktiengesellschaft - Chairman of the Executive Board & CEO [23]

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Thanks for the question, which was clearly addressed to me I feel good with this guidance, definitely otherwise I wouldn't have told you that. I was also discussing this range when it was a pre-indication. I mean it's times are difficult, times are maybe 2019 more difficult than in '18 because we do not know how the economy is continuing. But -- and it's very clear if we are missing EUR 100 million top line we are missing about EUR 30 million margin or EUR 30 million bottom line. So sales has a big impact on the profitability. But we are quite optimistic, and I think it's from today's perspective a very reasonable and achievable guidance.

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Jack O'Brien, Goldman Sachs Group Inc., Research Division - Equity Analyst [24]

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Just a second question on your experience, if I may, given that this is the first time we have met. I think a couple of the previous questions focused on things like procurement, IT, ERP and so on, which again previous management 2, 3 years ago tried to grapple with and it clearly it's not an easy thing to do. Can just give us a bit of background of your experiences whether you've done anything like this before? That should give us some confidence that this time around maybe it can happen because clearly it is quite a complex task.

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Stefan Klebert, GEA Group Aktiengesellschaft - Chairman of the Executive Board & CEO [25]

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I mean if -- I said I was part of this journey twice already, the first time when I worked for Schindler Elevator. Schindler Elevator already 10 years ago introduced single-client ERP system. And during my last job in Schuler it was the same Schuler has nowadays since about 1.5 years, one single ERP system worldwide.

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Jack O'Brien, Goldman Sachs Group Inc., Research Division - Equity Analyst [26]

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Okay. And just one final question on the accounting obviously there were some queries raised in recent years about accounting, receivables, et cetera. I'm sure you've heard these arguments. Have you had time, appreciate it's only been 4 weeks you have formally been in charge, to have a look through the statements and get comfortable with the numbers that we see today?

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Helmut Schmale, GEA Group Aktiengesellschaft - CFO [27]

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Yes, we are comfortable with the numbers, and we have focused these particular issues like for example POC was not only closing 2017 but also in the closing 2018 so at the midpoint of the year 2018. And as you have seen the POC was now finally came essentially down in the quarter-on-quarter development. So we are comfortable with what we have here.

And you were asking if I may take the opportunity to come back or again on the IFRS 16 thing, meanwhile I was able to look it up the interest impact is really minor, it's about EUR 2 million.

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Sven Weier, UBS Investment Bank, Research Division - Executive Director and Analyst [28]

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It's Sven from UBS. A couple of questions. First one is on the empowering of the divisions you've mentioned, which I guess is not only about the P&L responsibility. But I was just wondering to what extent Alfa Laval is maybe a role model for you because they've done the same. They've also empowered the divisions on the R&D, which has proven quite successful. I was just wondering if that is a role model for you? And also on the portfolio review, they obviously had the Greenhouse division where they put in the not so core stuff gave them a chance to develop and now sold everything. So could that also be a role model for you? That's the first one.

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Stefan Klebert, GEA Group Aktiengesellschaft - Chairman of the Executive Board & CEO [29]

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Okay. Concerning the empowerment of people, this is something where, I like I said, strongly believe in just to give you also a taste how it works today in this function organization if, for instance, the company has the opinion that in a site in Italy there are 2 or 3 more workers needed then it's nowadays it's a board decision to release these people because there is not really a clear P&L responsibility in between and you can imagine how long such a process takes. And there might be also topics where the board should rather look like them caring about individual decisions in some countries. Now this will be a clear allocation to the people. I think we have enough people because GEA was used to have a lot of speed boats, let's say, to have a lot of people who can take over entrepreneurship and I want to give back this kind of responsibility and it's also very clearly addressed. And this is maybe also something you can see in the current personnel decisions. I always say the flip side of responsibility is accountability. And this is a clear rule. And this is also what we can expect. But I believe and I think that people can manage that. When it comes to portfolio to this green model this is definitely a thing which can be helpful. I think but in our discussion, first of all, it is a question when we have the setup about the divisions if we have -- when we have a clear division do we have 3, 4, 5 or 6 divisions? What is the business of these divisions then we have to have a look what belongs to this division and are there any businesses, which we don't want to have any more this might be the first step before we start with some green models and things like that.

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Sven Weier, UBS Investment Bank, Research Division - Executive Director and Analyst [30]

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And how is it at moment on the R&D side? Is it also pretty central? Or is that already level.

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Stefan Klebert, GEA Group Aktiengesellschaft - Chairman of the Executive Board & CEO [31]

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Yes, I mean, it depends on which direction you look. What is quite -- at the moment there is -- it is also a pure functional organization, which is very difficult because you can imagine that there is a difference in R&D between a milking robot and a cooling compressor. So that's a quite different business. But what we also have to be aware when we make the new organization everything, which is about software, which is about digitization, which is about Internet of things I think these are things where we will find the way and have to find a way in the new organization set up how can we make sure that not every division is inventing the wheel again and where we can use the economy of scale impact for that.

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Sven Weier, UBS Investment Bank, Research Division - Executive Director and Analyst [32]

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Okay. And the other question was just following on IFRS 16 not sure if you mentioned that, what is the increase in net debt also equivalent to the increase in the overall assets? What's the kind of magnitude?

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Helmut Schmale, GEA Group Aktiengesellschaft - CFO [33]

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We provided that in our statement here that the impact here is on the asset side about EUR 186 million for us as an increase of the total assets, which will then be part of our capital employed.

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Sven Weier, UBS Investment Bank, Research Division - Executive Director and Analyst [34]

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And that's also similar then on the net financial debt side?

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Helmut Schmale, GEA Group Aktiengesellschaft - CFO [35]

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That is -- on the liability side, that's by and large matching.

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Sven Weier, UBS Investment Bank, Research Division - Executive Director and Analyst [36]

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And then just lastly, in terms of -- you mentioned obviously one of the reasons for the moderate sales decline, this year was how the Q4 turned out on the order intake and obviously we now have 2 months behind us, would you see that confirmed also for the beginning of the year? Or...

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Helmut Schmale, GEA Group Aktiengesellschaft - CFO [37]

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It's very early, let's say, to talk really about this number this year. So we will watch it, and we will have a look at that when we come out with the Q1 numbers.

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Peter Reilly, Jefferies LLC, Research Division - Head of Capital Goods of Equity Research [38]

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It's Peter Reilly from Jefferies. Two questions, please. You talked about a lot of the problems being internal in nature rather than external but it's really striking how Solutions has been much more disappointing than equipment in terms of profitability over the last 2 or 3 years. So what makes Solutions different? Why have they had many more problems? Is it employee morale? Bad pricing? Poor project execution? And are these things that are relatively easy to fix? So they are not to do with ERP systems and manufacturing footprints?

And then secondly, if I can just come back on the receivables also you talked about the IT problems been impacting AP, overdue receivables and maybe can you give us some more color on what's been going on there? Whether it's customers being unhappy with the product you've been selling and not paying their bills? Or whether it's just that you haven't had an organization to physically chase up customers and get the bills paid?

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Helmut Schmale, GEA Group Aktiengesellschaft - CFO [39]

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Just talking about the receivables side, which you addressed, I mean, we also scrutinized that very much with the organization, and we have orchestrated task force in order to really manage those receivables and if you look into the details here of our annual report you will find that we have substantially cut down the overdue receivables, which are older than 90 days from about EUR 130 million down to about EUR 70 million. So that's massive reduction, which we have achieved there. And so far I'm okay, with that. Of course, we need to keep that going. There is still work ahead of ourselves. In particular, if you look into the various regions that you can even do in some regions more in order to match that and control this but I'm okay with that, what we have achieved.

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Stefan Klebert, GEA Group Aktiengesellschaft - Chairman of the Executive Board & CEO [40]

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Concerning your questions about solutions issues, I mean -- I would say the change to the function organization impacted Solutions a bit more than Equipment side because there is a lot of more mixtures let's say between legal entity and functions, which have been integrated. But on the other hand it's at the end a dairy issue, which we are having here, a little bit also beverage issue. And at the end if you lose money it has something to do with bad projects. This is one of the biggest issues, which we are having here. And that's -- yes, that's also the reason why we are now making some changes because the problems might not have been dealed with like it would have been appropriate. And now we have new people in place and we will see that we can turnaround it.

And the second big issue in Solutions is an overhead issue that we increased cost very much also especially in the sales organization and we have to check what is really well valuable and what not. So these are, let's say, the main issues we have. But it's also very clear statement, and this is important for you to know, it's not everything in solutions impacted because we have also very good and reasonable businesses within solutions. We have pharma freeze dryers, which is really very interesting business we have tablet presses, for instance, this has nothing to do with big project but these are part of Solutions. And we have very, very good innovative products. We have a good service business in Solutions. So it's not that everything is wrong. But we have some clear issues, which we have to work with and where we have to -- where we need to change something.

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Peter Reilly, Jefferies LLC, Research Division - Head of Capital Goods of Equity Research [41]

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And if I can just follow up on a related note. Are you at all worried about the backlog in Solutions that there might be unexploded bombs in 2019? Because obviously with all the dislocation in recent years maybe people have taken aboard contracts just to keep their jobs at low margins that contain difficult execution problems?

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Stefan Klebert, GEA Group Aktiengesellschaft - Chairman of the Executive Board & CEO [42]

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Yes. I mean that's -- to really judge a project when it -- when you get the order there are only a very, very few people. I mean let's imagine we have a project, an order intake of a yogurt line EUR 7 million, EUR 8 million, EUR 9 million whatever you will find only a very few people in this world who can really judge if this is the right calculation, if it is coming right out so you have to have the right people. And this is where I have at the moment a good feeling that we touch base. This is something where we will -- also with a new team now looks very, very thoroughly again if there is something, which needs to be addressed. But I have no indication so far that something more is coming up. But this is an issue, which we will thoroughly look at. It's for sure. And then it's about managing the project in the right way and then I hope we can see quickly also a turnaround here.

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Peter Rothenaicher, Baader-Helvea Equity Research - Analyst [43]

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Peter Rothenaicher from Baader Bank. You mentioned 2019 will be in your view another transition year, but isn't it fair to assume that 2020 will be another transition year? Because you announced that in September you will present all your detailed measures and then it takes time to implement them and I think particularly 2020 will be affected massively, and I ask this because GEA was in my point of view over the recent 10, 12 years restructuring and reorganization case. And when can we expect GEA to become normal company without any restructuring?

And the second point regarding the ERP systems, so in the former management presentations there was presented a schedule for OneGEA ERP, what changed in your view? And what will there be different from that?

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Stefan Klebert, GEA Group Aktiengesellschaft - Chairman of the Executive Board & CEO [44]

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Okay, the first question is some questions, which are also sometimes coming from work council and they also always want to have a stable and calm situation. And I always say as long as we are alive there will be change. So I think it will be always something, which we need to change, change will go on. When I say 2019 will be a year of transition, I'm mainly focusing on the organizational changes. This will have an impact on the organization. A lot of managers will have different areas of responsibilities or they have -- they will come back to responsibility. This is the big thing of 2019. And this is utmost important, let's say, to have a set up to that this company becomes manageable again. Because this is my feeling today that at least I have very limited ideas how to manage the company in the current setup because I need somebody who takes over clear responsibility. I want to have a clear commitment for a growth rate, for a top line, for a cost structure and for a bottom line results. And then I can start discussions with the managers, I can talk to them if I have the feeling that they have too high sales costs or too little growth or they are in the wrong markets or whatever. But I need to have these people. And this is something we need to change and, which is from my point of view really a basic and a fundamental issue. And then of course ERP will be a long journey, production footprint will be a journey. Hopefully, also in 3 years' time we will find additional saving potentials things like that. That's quite normal in life, I would say.

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Hans-Joachim Heimbuerger, Kepler Cheuvreux, Research Division - Equity Research Analyst [45]

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Hans-Joachim, Kepler Cheuvreux, one question.

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Stefan Klebert, GEA Group Aktiengesellschaft - Chairman of the Executive Board & CEO [46]

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And use the micro.

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Hans-Joachim Heimbuerger, Kepler Cheuvreux, Research Division - Equity Research Analyst [47]

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Yes, Hans-Joachim, Kepler Cheuvreux, one question. I know that you will not communicate on your plans on the portfolio before the Capital Markets Day. Still may I ask what's your view on the Dairy Farming business? And my view over the past years this business was often dilutive, it was very volatile and it serves a different type of clients compared to your core business. Can you confirm? Any comment would be appreciated?

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Stefan Klebert, GEA Group Aktiengesellschaft - Chairman of the Executive Board & CEO [48]

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I mean almost every business we have in GEA there are some positive sides, some negative sides. But you are right. Dairy Farming is a different business like the majority of our business because it's not an industrial customer at the end, it's a different business model, different business role. We will have a look at that. We will think about what we are going to do, how we integrate it in the organization or not integrate it in the organization, that is a discussion, which we will do. I can also tell you there are also some positive sides of this business just to mentioning that the service part is more than 40%. We have a very fantastic hygiene business in that division for instance, or not division but in this area of business. So we will have a look at that. And as I said we will make clear statement to the portfolio in September during the Capital Market Day.

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Nika Zimmermann, Deutsche Bank AG, Research Division - Research Associate [49]

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It's Nika Zimmermann from Deutsche Bank. I got actually 2 questions. The first one is on your strategy on the production area. In the presentation you said there are 2 areas. How exactly are those allocated? And how can I understand it like how do you want to unify those? Like what will happen in that area? And the second one is, where do you see the profit -- or the margin expansion of GEA in let's say like 5 to 10 years or where do you see like a stable and good margin of GEA?

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Stefan Klebert, GEA Group Aktiengesellschaft - Chairman of the Executive Board & CEO [50]

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Maybe I'll answer the first question first because that's easier. I cannot tell you nowadays where the margin in 5 years are. So I need to have much more time for that. As I mentioned I'm 4 weeks here as the CEO, and of course we will give you a lot of indications where we see clear opportunities and what are the numbers, which we expect to see in the various areas at the Capital Markets Day. When it comes to the production question, we have today a production organization in the BA Equipment and we have another one in the BA Solutions. And there are some interesting things, for instance, if you go to China, to Suzhou you will find one factory from Solutions and it takes you 20 meters and then you find the next factory for Equipment. And these are things, which makes limited sense. And this is where I strongly believe we more have to look at the kind of production there is, for instance, mechanical production, which but if you make a part on a drilling machine or on a milling machine it is not important to, which machine this part goes later on. So there might be much more synergies to be possible to use. We will think about bringing together assembly shops, things like that. But at the end, as I said, the businesses in Solutions and Equipment are not so different.

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Fabian Kirchmann, [51]

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One more question here in the room and then to the telephone.

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Unidentified Analyst, [52]

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Yes, just 2 follow-up questions on your comments on BA solutions and why it didn't perform in the past, you said, overhead costs were too high and people problems so to say. On overhead cost just coming back to a comment Dr. Schmale made at the beginning of the presentation that there were I think an EUR 11 million higher overhead cost in Solutions in the fourth quarter, so is that something that is going to be annualized going forward and what is the reason behind?

And the second question is basically on the changes you implemented, I think there was a sense that during Fit for 2020 especially in Solutions too many people were put into other positions or people that were experienced in pricing, et cetera left the company. So now you made already implemented very significant changes on the management side after a few weeks as a CEO. So why is there that sense of urgency in making those management changes at this point in time?

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Stefan Klebert, GEA Group Aktiengesellschaft - Chairman of the Executive Board & CEO [53]

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If I understand the sense of urgency you mean where this is in Solutions?

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Unidentified Analyst, [54]

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Why so quick after you arrived? So big changes in an organization, which is I think in the past years has undergone some significant changes not always to the better already?

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Stefan Klebert, GEA Group Aktiengesellschaft - Chairman of the Executive Board & CEO [55]

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Yes, I mean it's simply because of the fact that we are losing a lot of money in this division and if you look at the last -- at the numbers for the last 3 or 4 years the profitability of Solutions dropped down by more than 50%. So I feel that there is a good reason or need to change something. And I also of course need to put some new people in place to have a fresh mind, to really make sure that nothing is hided. I think that's appropriate action.

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Helmut Schmale, GEA Group Aktiengesellschaft - CFO [56]

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Talking about the overhead yes, we will do a deep dive there, that has also to do with the fact that we are going to look into the future setup of the organization and then we will question ourselves where for example in the area of selling expenses, it's all the best it could be or where we maybe need order to address our role to the market yet again based on the new organization that certainly has then also an impact on overheads in central selling expense.

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Stefan Klebert, GEA Group Aktiengesellschaft - Chairman of the Executive Board & CEO [57]

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Okay, maybe let's start with questions from the phone, please.

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Operator [58]

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(Operator Instructions) And your first question today comes from the line of Klas Bergelind from Citi.

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Klas Henrik Bergelind, Citigroup Inc, Research Division - Director [59]

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Yes, Stefan and Helmut, it's Klas from Citi. A couple of questions please, I will take them one at a time, if I could. The first one is on the new organization, increased decentralization has proven the right decision across several companies in machinery, you will now see conglomerate like businesses doing this as well, we have Siemens and ABB pushing responsibility out in the organization. However, that requires a very solid IT backbone to get the correct information on the KPIs back to management and you say that considerable improvements need to be made here. The new organization will be in place by end of June but you say that 3 to 5 years, which is typically normal, is the time frame you believe that you will have the IT backbone in place. So do you believe that this is the timeframe as well for the decentralized structure to start to pay off as well? I will start there.

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Stefan Klebert, GEA Group Aktiengesellschaft - Chairman of the Executive Board & CEO [60]

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Yes, thanks for your question. Yes, with the increased decentralization. I mean we have in all of our sites ERP systems in place it's not that we don't get the information. Just the harmonization is not there. People if they work today let's say in Frankfurt and tomorrow in London, they don't have the same environment in all around that of themselves. And yes, we will get, and we actually do have the necessary level and detail of information, which we need to also steer decentralized organization. For me it was even more complex to steer a function, a global organization compared to having steering model based on individual legal entities. And so far, yes, the journey with ERP systems might well be 3 to 5 years that's also, which we addressed previously. Now we are in the making so to say to develop the first application to our new OneGEA template for the newly acquired company Pavan. But we will take it from there and then roll it out over time.

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Klas Henrik Bergelind, Citigroup Inc, Research Division - Director [61]

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Okay, and the reason why I ask is obviously, there was a difficulty in getting information around completion margins i.e. you had cost building throughout the project, pricing went down. I'm referring obviously to the first profit warning in the third quarter of '16. But what are you saying there Helmut is that actually the IT backbone is strong enough to send enough quality information back to the organization right now?

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Helmut Schmale, GEA Group Aktiengesellschaft - CFO [62]

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Yes. And mind the fact please that we have developed a lot here along the lines of the new organization. We have created a big database where all 3,500 or 4,000 projects from BA Solutions are included based on the baseline information, which we collected from the individual entities. So this information was then condensed and is now available on group level that is something, which we have added to a basket of information systems quite recently.

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Klas Henrik Bergelind, Citigroup Inc, Research Division - Director [63]

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Okay, my second one is on pricing. I mean we hear you on procurement and footprint but really price cost has been a big issue given that you have profit warned several times under accelerating growth and there is now price pressure also in Equipment not only in Solutions and that is a bit concerning now when growth is fading. Can you give us a more concrete example of how GEA can start selling value better instead of just pricing on cost plus? You say that your #1, #2 in 2/3 of the business. Don't you think you need to accelerate the R&D to improve the portfolio to take up higher pricing? Or is this improvement in value add linked to the improved cross selling, decentralization, investment in IT, just so we understand whether you need to invest more in R&D to improve the product quality?

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Stefan Klebert, GEA Group Aktiengesellschaft - Chairman of the Executive Board & CEO [64]

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Can you please repeat it for us? Hard for us to really understand that here.

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Klas Henrik Bergelind, Citigroup Inc, Research Division - Director [65]

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Okay, maybe the line is bad. What I'm saying is price cost has been an issue in GEA. You had profit warnings despite accelerating sales growth. Do you feel that to move more into value-based pricing that you also need to increase investments in R&D? Or do you think value-based pricing will be facilitated by the new decentralized organization's investments in IT and so forth?

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Stefan Klebert, GEA Group Aktiengesellschaft - Chairman of the Executive Board & CEO [66]

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Yes, thank you for your question. At the end of the day, value pricing is one of the elements, which we have still ahead ourselves. I believe that will be also a key focus of the new management team in place to identify those hotspots in our product portfolio where -- and then to question ourselves are we pricing it right or not. There are examples in place where in hindsight we could have said if we would have known that earlier than we could have priced it differently based on these somehow unique solution, which we have in place for our clients. So that is something we will take into focus and the issue with the pre-post cost deviations, which we had in the past. Yes, that was more an execution issue around the organization, which we had so far. And I believe and trust that with the new setup we will make that much smoother than the past and to get just the right people on board.

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Helmut Schmale, GEA Group Aktiengesellschaft - CFO [67]

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Let me add more comments to the topic of value pricing. I mean value pricing absolutely demands that you have somebody who is responsible for that and who has an interest in the benefit of increasing prices and margins because being a salesman being out with customers it's always easier to sell something by lowering prices. And therefore you have to have a setup in the organization where those who are making decisions for prices and terms and conditions are at the end also responsible for the pain or the gain which comes out of higher or lower prices or better or worse terms and conditions. And this is not the fact in the nowadays organization.

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Klas Henrik Bergelind, Citigroup Inc, Research Division - Director [68]

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Yes, exactly, no I was just asking about R&D whether you felt that you needed to invest more in the product portfolio, but I guess that the decentralization will help with value-based pricing.

My third one is on cost savings from procurement and footprint, and previous management said EUR 60 million to EUR 80 million from both. You're saying there will be a more stringent focus on procurement combining the 3 organizations, reduce the number of suppliers. I can get EUR 60 million, EUR 80 million in just procurement savings out of EUR 2.5 billion quite easily when I benchmark with others having done the same thing. So is that your benchmark 2% to 3% of the bill? And procurement and footprint can come on top, can you give us some early indications Stefan on how you think about purchasing savings?

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Stefan Klebert, GEA Group Aktiengesellschaft - Chairman of the Executive Board & CEO [69]

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I don't like to say any numbers nowadays and I hope that this is acceptable for you because as I said it's my fourth week as the CEO and I need to set up the organization, I have to bring the right people in place. But I just want to remind you 3 purchasing organizations, in 3 different board member responsibilities, 25,000 employees, I bet that there is something to improve.

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Klas Henrik Bergelind, Citigroup Inc, Research Division - Director [70]

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Yes, no, I get that, my very final is some quick housekeeping, can you confirm and maybe for you, Helmut, that we're looking at EUR 24 million in reversals this year from provision releases we had in '18, I think EUR 9 million in the second quarter, EUR 15 million in the fourth and there was also an impact from FX of EUR 9 million because of hedging in other items. So that is EUR 33 million that reverses in '19. And if there is anything else that will reverse? And then what should we expect from restructuring charges in '19? I guess the factory closures announced by previous management is still ongoing?

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Helmut Schmale, GEA Group Aktiengesellschaft - CFO [71]

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Thank you. With regard to the false gain you are right if you look into the year 2018 results, actually the way we are doing the budget we are not planning for any gains or losses from foreign exchanges so that will then turn out in the course of the year and it's something which you can hardly predict there. And what was the second question we had? You had?

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Klas Henrik Bergelind, Citigroup Inc, Research Division - Director [72]

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Restructuring charges.

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Helmut Schmale, GEA Group Aktiengesellschaft - CFO [73]

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Yes, restructuring charges that's too early to say. I mean at the end of the day we will come up with, the first ideas along the timeline, which was just presented by Stefan Klebert. So yes, we have done one major restructuring as you know with the factory in France in the year 2018. But any further details we will develop over time now.

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Klas Henrik Bergelind, Citigroup Inc, Research Division - Director [74]

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Yes. I get that you don't forecast FX or provision releases or that you take provisions, that's quite clear. I was more referring to what happened in '18 when we did the bridge into '19. So we're talking EUR 33 million that will reverse in '19? That was my question.

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Helmut Schmale, GEA Group Aktiengesellschaft - CFO [75]

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Okay, but you could also see other things, which were going against us now where we, for example, have taken additional provisions or hits also on the year 2018. It's always a question what is the bottom line you take. We have taken here the clear obvious thing of this release of provision of the EUR 24 million.

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Operator [76]

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And your next question comes from the line of Max Yates from Crédit Suisse.

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Max Yates, Crédit Suisse AG, Research Division - Research Analyst [77]

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Just first question for me was on the follow-up on pricing. I think you talked about Q4 specifically not seeing price increases that you had tried to put through sticking. So given the kind of comments around strong market positions given the inflation that's out there, could you kind of help us understand why you were unable to do that? I mean, what is it, are customers sort of pushing back, going with alternative suppliers? Is it specific end markets, just to really get a sense of what has made pricing so challenging in the fourth quarter?

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Helmut Schmale, GEA Group Aktiengesellschaft - CFO [78]

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Let me give you the example of the service business here we were expecting for example that the price increases in service would kick in earlier than actually they did in the fourth quarter. Now with the price level increases are still in place and that may then hopefully give us some tailwind for the year 2019. So just as a matter of timing, we expected quarter 4 to see already more of it.

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Max Yates, Crédit Suisse AG, Research Division - Research Analyst [79]

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So okay, so partially a timing issue?

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Helmut Schmale, GEA Group Aktiengesellschaft - CFO [80]

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It's timing issue, yes. And hopefully at the end of the day it's also a matter of how the market situation is, and so there is a fine line where maybe you call also for additional competition from gray market suppliers. And I have examples there where this is really an issue.

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Stefan Klebert, GEA Group Aktiengesellschaft - Chairman of the Executive Board & CEO [81]

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But let me make some remarks to that, I also need to refer to the current setup in the organization. I have to make you aware that at the moment if you are a salesman or saleswoman whatever in GEA your target is to create turnover or order intake. But our sales organization in the current setup is not measured on price quality, they are measured on volume of order intake. And of course, there are some barriers and some levels where they have to ask for approvals. But I would say there is a limited intrinsic interest in defend in each single order for the best price. This is, I would say, reality and therefore I want to stress that again the change or the adaptation of the organization is necessary that pain and gain comes with the same people who decide what is the price, what is the margin therefore and what are the terms and conditions. And this is for me something we definitely have to come back very quickly. And then we can start managing really prices, and we can talk about value pricing because you can always put it in some extra charts or in some price lists, but if you don't have people who are defending that in front of the customers you will only get a little bit out of that.

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Max Yates, Crédit Suisse AG, Research Division - Research Analyst [82]

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So I mean can we assume that kind of even before June or September you may have changed remuneration policies to try and reflect some sort of pricing or some sort of margin -- better margin management into the sales organization? Is that something you can do faster than June or September?

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Stefan Klebert, GEA Group Aktiengesellschaft - Chairman of the Executive Board & CEO [83]

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As I said, 2019 will be a year of transition, we will first now work out how the setup of the organization is, we need to find and to allocate the right people to make responsible for this different units, GEA is not such a small company. Let's say, then we have to adopt the remuneration systems and the incentive schemes but this is also something, which will take the whole year I would say.

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Max Yates, Crédit Suisse AG, Research Division - Research Analyst [84]

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Okay, and could you maybe just give us a ceiling on IT spending? I mean obviously the costs as part of the strategic initiatives have been rising over the past few years and do you think 2019 in terms of absolute IT spend will represent the peak? Or can we envisage that actually as you can continue to harmonize the IT systems that may need to continue going up in an absolute level, making it an ongoing year-on-year headwind in 2020?

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Stefan Klebert, GEA Group Aktiengesellschaft - Chairman of the Executive Board & CEO [85]

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I would like to refer on the Capital Market Day in September, which -- where we plan to really, come up with a concrete plan for the change in ERP system, we will then tell you how long do we need, how much does it cost, what kind of CapEx, what kind of OpEx do we expect and what will be the impact we expect from that.

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Max Yates, Crédit Suisse AG, Research Division - Research Analyst [86]

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Okay, and maybe just finally on -- and maybe finally, on the central costs and I guess, central functions one of the things that I have sort of heard regarding GEA is that one of the difficulties that has taken place in the organization has been kind of the shrinking down of the central functions of the finance functions that has left kind of certain regions unrepresented. And maybe that somewhere that in order to increase accountability you may need to actually add some of the sort of central finance functions. Other organizations where similar kind of change has taking place we've seen kind of new management have found excess central costs. So could you give us a sense of what your take is on maybe the central functions in the organization? Are there a lot of people in whether it's finance, human resources that perhaps can be pushed into the divisions and maybe duplicated? Or do you think this is an area that you may actually have to add to in order to get your kind of wish of increased accountability across the group?

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Stefan Klebert, GEA Group Aktiengesellschaft - Chairman of the Executive Board & CEO [87]

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I mean when we shift over to our divisional organization you might expect that we also have a CFO in each of these divisions that I think is something which you could expect because this is clearly that this plays an important role. But we will also have, of course, a centralized functions where we coordinate and group everything together. But it's, as I said, also too early after 4 weeks to give you clear details or numbers how will this be changed and what is the impact of the cost.

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Max Yates, Crédit Suisse AG, Research Division - Research Analyst [88]

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Okay, and maybe just very final one. It looks like we're clearly there is no kind of cash flow guidance for 2019. I assume part of the reason is because restructuring costs will dictate kind of how cash flow plays out, but I mean could you give us based on the EBITDA that you've guided to any sense of pre -- additional restructuring costs, which may come with the CMD? What your expectations might be for cash flow this year?

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Stefan Klebert, GEA Group Aktiengesellschaft - Chairman of the Executive Board & CEO [89]

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I mean the guidance, the EBITDA, as you said and as I also explained before. This is an all-in EBITDA before restructuring and whenever we have evidence that there is restructuring necessary we will inform you not only about the restructuring cost we will also inform you then what is the benefit we expect out of that. Because both belongs together, I would say. But once we have something like that we will inform you.

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Max Yates, Crédit Suisse AG, Research Division - Research Analyst [90]

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Okay, well then maybe any feeling on working capital or CapEx just as -- whether it's percentage of sales kind of working capital whether you would expect further inflows or whether market environment makes -- and other kind of competitors using working capital to gain share so therefore you might not be able to get further inflows? How you feel about the level of percentage of working capital to sales going into '19? Is it still too high? Or do you expect it to continue at this level for 2019?

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Helmut Schmale, GEA Group Aktiengesellschaft - CFO [91]

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Helmut Schmale. If I may say something to that I mean all of the major game changer will be working capital. If we'll be able to stabilize in the way that we don't see any further cash out of that then I assume that at the end of the year 2019 we are still in the situation that we would be in fairly balanced net cash position maybe comparable to what we had this year after paying the dividend.

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Max Yates, Crédit Suisse AG, Research Division - Research Analyst [92]

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Sorry, just so I understood that, you should be net cash versus the EUR 72 million net debt currently after paying dividend?

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Helmut Schmale, GEA Group Aktiengesellschaft - CFO [93]

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No, I said we had a similar position like we were at the end of the year 2018 and that of course includes what we have paid out for dividends.

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Operator [94]

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And your next question comes from the line of Lars Brorson from Barclays.

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Lars Wauvert Brorson, Barclays Bank PLC, Research Division - Director [95]

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I think that was all at least for now pretty clear and I think very sensible first steps. Can I go back to the earlier questions on the order backlog in Solutions, I think quite a key question, I think investors at least historically have had legitimate concerns here, it sounds like you have a good feeling at this point, you have no indication so far of any issues. But you also sound quite frankly a bit tentative, you talk about doing a deeper dive now with your new team. Can you help me understand a little bit better the scope of projects that you're about to order that you're talking about a handful of say major Dairy Processing projects or is it more broad-based than that, when might we hear back on these findings? Can you help us a little bit with what we should expect going forward there?

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Stefan Klebert, GEA Group Aktiengesellschaft - Chairman of the Executive Board & CEO [96]

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I think the most important information is that there are no indications at the moment that something should worry us. However, you know about the situation, how it was in Solutions, you know that I changed yesterday the team and that we will have a look at that, however, I hope and I believe that there is nothing to be expected but I cannot prove that nowadays, but as I said, there are no indications. I think we already have let's say got rid of some legacy projects, this is the situation.

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Lars Wauvert Brorson, Barclays Bank PLC, Research Division - Director [97]

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And do we have a sense for when we might hear back on your findings?

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Stefan Klebert, GEA Group Aktiengesellschaft - Chairman of the Executive Board & CEO [98]

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If you don't hear anything, there are no findings. If there will be some findings I will announce that. But I do not want to make you nervous, as I said, there are no indications. I think we got rid of a lot of legacy projects. I think also there are some changes going on, which improve the situation but I will have a look at that again.

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Lars Wauvert Brorson, Barclays Bank PLC, Research Division - Director [99]

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Understood. Secondly if I can just ask to capital allocation. You have, I think, sensibly for now said M&A is off the table, balance sheet is in pretty good shape as you pointed out. I wonder whether you could share some thoughts on a potential redistribution to shareholders, specifically why not execute on the buyback mandate that was renewed at the last AGM, that's the authorization to buy back 10%?

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Stefan Klebert, GEA Group Aktiengesellschaft - Chairman of the Executive Board & CEO [100]

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Let us first, let's say, focus on the new organization setup and also let us think about what do we have to invest when we make all these changes when we set up our GEA ERP roadmap, when we have clarity what are we going to do with the production footprint, and then I think it's the right time also to think about that question and what can we do with our quite healthy and stable balance sheet.

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Lars Wauvert Brorson, Barclays Bank PLC, Research Division - Director [101]

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Finally, if I can just on management incentivization, you said 7-figures worth you bought I think that was EUR 2 million worth of shares, which is notable in the world of GEA. Can I ask you more broadly, what you would like to see in terms of shareholder alignment of management incentivization? I mean appreciate it's more matter for the board, but I'd be interested in your view on whether you think there is scope for should we say a broader overhaul of management compensation?

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Stefan Klebert, GEA Group Aktiengesellschaft - Chairman of the Executive Board & CEO [102]

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Maybe I haven't got the question right. It's -- can you make it more specific?

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Lars Wauvert Brorson, Barclays Bank PLC, Research Division - Director [103]

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Yes, sure is there scope here to realign management compensation closer to shareholder value creation, broader option programs? But yes, okay...

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Stefan Klebert, GEA Group Aktiengesellschaft - Chairman of the Executive Board & CEO [104]

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Okay, point taken. I mean if you look at our annual report you will find description of the new management remuneration system. So what is as long as it is with me, also with Steffen Bersch's new contract as well as the new contract of Marcus Ketter are different from the old contract and there is, I would say, a much stronger alignment to the shareholder value. And despite that, as I said before, I also personally invested a reasonable money from my private pocket before I started in GEA. And I fully believe that I made a good investment even if the current share price is below what I spent.

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Operator [105]

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Your next question comes from the line of Lucie Carrier with Morgan Stanley.

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Lucie Anne Lise Carrier, Morgan Stanley, Research Division - Executive Director [106]

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I just have a couple of more kind of a follow-up few questions left. The first one is on the footprint, I see from your material that you seem to describe some of your footprint to be of small scale or maybe a bit subscale. So I understand there might be some reduction around this footprint. But should we think that there could be also some investment in terms of consolidation in footprint in specific existing factories or maybe even kind of building up slightly more larger factories in low-cost countries? How should we think about this balance between the optimization i.e. reduction versus investment in the footprint? That's question number one.

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Stefan Klebert, GEA Group Aktiengesellschaft - Chairman of the Executive Board & CEO [107]

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Yes, I mean at the moment, GEA has a bit more than 60 sites worldwide. And as I said, we have the -- majority of the production footprint is in Europe. We have to think about what we do, how we can change it, we made recently a decision to expand one of our production workshops in Slovenia where we have quite reasonable costs much lower than in -- let's say, in the majority of the countries in Europe. And this is a site, which is very close to a very good infrastructure. So we will change things in that direction, of course. The target is to have less sites, less production sites at the end and the target is also to have more production volume outside of Europe, where our markets are because then we do not only have the impact of the lower production costs, we also save transport costs, logistic costs, we also save tax, things like that. But this is something we have to work out. We also will make up our minds how do we anchor this in the new organization. And in September in the Capital Market Day, I think we can say much more to that.

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Lucie Anne Lise Carrier, Morgan Stanley, Research Division - Executive Director [108]

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Okay, just one which is more follow-up on an earlier question from Klas. I understand that the IT program is going to last a certain number of years. Just for us, however, to kind of understand what we are facing here in terms of like turning back this company on its 2 feet. The IT program is an ongoing process but when you think -- when do you think we can see actually the company, I will say, operating in a fairly efficient manner more in line with what we see with competition in terms of financial performance? Is that -- do we need to wait for the IT program to be finished? Or is that something that is going to be possible even before that? In other word, when are we going to start seeing some of the benefits of the initiative that you, I think, already have in mind considering the announcement you've made today?

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Stefan Klebert, GEA Group Aktiengesellschaft - Chairman of the Executive Board & CEO [109]

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Very good question, and thanks for the question. I fully believe and that with the organizational adaption to the divisional structure, we will have a very quick and significant improvement in terms of financial transparency. Purely by the fact that we have a lot of legal entities that we have in each legal entities, our ERP system with a clear P&L. So we simply have to add these legal entities up to a division. This is in a lot of cases possible not in 100% but the majority of the business can be sorted like that. And then it will be much more easy -- much easier to really have reliable numbers because today all numbers you see or what we have to report are kind of artificial collection of different pieces of the cost structure of various legal entities and different ERP systems. And this makes the things so tricky and also so sometimes unreliable. And the big move, the ERP system, or the alignment of the ERP system will help us to make it more effective. Will help us in the medium to long-term run also to be simply more effective to work with less IT costs. But we will have and we will see definitely some investment and also some OpEx in IT during the next time. But this has to be worked out.

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Lucie Anne Lise Carrier, Morgan Stanley, Research Division - Executive Director [110]

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But just maybe to try to kind of frame that a little bit more, I mean can we expect the company to again to operate, I would say, in a more efficient manner, in a real way i.e. that we would see that in terms of the number and in terms of the performance in the company in the medium term? And when I say the medium term I'm kind of referring to like a 2-, 3-year time frame? Or is it going to take longer because the IT integration is taking longer?

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Stefan Klebert, GEA Group Aktiengesellschaft - Chairman of the Executive Board & CEO [111]

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No, I mean you don't have to expect until we have one single ERP system that it takes so long to get back financial transparency and financial reliability. This has much more to do, I would say, now with the change in the organizational setup. And I expect that we can come back to quicker and more reliable transparency in finance, in a very reasonable time. And I hope that we have a different situations then also in the year 2020.

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Lucie Anne Lise Carrier, Morgan Stanley, Research Division - Executive Director [112]

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The third question I had was around I was curious to kind of understand how you see -- when you think about the business and the new structure, in your view is it more useful in terms of incentivizing your kind of middle management, your salespeople to kind of think about the business from an application standpoint, type equipment standpoint? Or do you think it is more readable and better to look at it from an end-market standpoint? Just how you view the business in terms of how you want to segment it?

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Stefan Klebert, GEA Group Aktiengesellschaft - Chairman of the Executive Board & CEO [113]

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I mean there are basically, from my point of view, always 2 dimensions you can cluster it via technology or via markets. This is something we will discuss, it might be also at the end a combination of both. This needs to be worked out and as I said give us time until June and then we will come out end of June with the clear setup of the new organization and you will know then how many divisions we have, what is the name of the division, what is the business of the division, what is the turnover and the profitability of this division.

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Lucie Anne Lise Carrier, Morgan Stanley, Research Division - Executive Director [114]

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Okay. And my last question, sorry if you mentioned that before but I got disconnected from the call earlier, have you kind of given some sort of qualitative comments in terms of your outlook for 2019 for your large end markets and also the balance in terms of performance between Equipment and Solution versus what we've seen in 2018?

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Stefan Klebert, GEA Group Aktiengesellschaft - Chairman of the Executive Board & CEO [115]

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The outlook is reflected in our guidance. I mean we have a lot of different markets. Some of them are slightly up, some of them are slightly down. But there are no major big market driven issues. We might have some internal issues, which we have to tackle and, which Schmale also mentioned the order intake issue, which comes from North America, where we have to have a look at it. But all in all, I would say there is nothing specifically to mention from the market perspective, which is remarkable as a single issue.

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Lucie Anne Lise Carrier, Morgan Stanley, Research Division - Executive Director [116]

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And when we think about the performance of Equipment and Solution, well, and I appreciate of course that next year or this year you will have different divisional structure but right now this is what we have these 2 division. I mean when we think about the declining EBITDA contribution, is that evenly shared between the 2 division? Or actually probably Solution is a bit more dragging the average? How should we think about that?

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Stefan Klebert, GEA Group Aktiengesellschaft - Chairman of the Executive Board & CEO [117]

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I mean also in 2019 Equipment will contribute much more to the overall profit compared to Solutions. But as I said, it's very difficult for me always to talk about Solutions and Equipment because to be honest, I do not really understand the separation. It is both our conglomerate even if in Solutions there is more project business or bigger projects but we also have pure machine business in Solutions, we have pure service in Solutions, so this is something I feel will become much clearer when we have the divisional setup.

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Operator [118]

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And I would now like to hand back to the Mr. Kirchmann.

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Fabian Kirchmann, [119]

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Okay, I would say if there are any more questions? Let's take last one maybe over there okay.

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Sebastian Ubert, Societe Generale Cross Asset Research - Equity Analyst [120]

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Yes, Sebastian from Soc Gen. I have 2 questions, 1 of the housekeeping items and also 1 on the strategic projects cost another EUR 50 million, EUR 49 million in particular this year. That we have learned this morning about, what is this all about? It seems to be on top of the restructuring charges that are to come in the future. So just to have an understanding what has been spilled over since I thought was EUR 90 million roughly a strategic cost last year, which would have ended this long journey of strategic measures?

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Helmut Schmale, GEA Group Aktiengesellschaft - CFO [121]

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Yes, it's around -- a lot around IT topics. As we were discussing all that we will like to stabilize that further. And about our CRM system so we are further rolling out new global tools, which we have like, for example, a Workday or customer relationship management. So that is to conclude on these topics, which we have initiated.

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Sebastian Ubert, Societe Generale Cross Asset Research - Equity Analyst [122]

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And that will end this year or is it going also in 2020?

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Stefan Klebert, GEA Group Aktiengesellschaft - Chairman of the Executive Board & CEO [123]

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I mean there I would say, strategic projects include also things, which we quite likely will need also in the future when, for instance, is about license, IT software licenses for CRM systems or something like that, which are at the moment included in the strategic costs. That's a reason why we change now to all-in EBITDA. We will not separate in the future anymore between what is strategic, what is not strategic because this might always be a very long and very creative discussion. We stopped that discussion, we will guide all in EBITDA. We take out only restructuring cost and whenever we take out restructuring costs we tell you clearly what are we doing with this money? What is the impact you can expect? And how long does it take to finalize it?

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Sebastian Ubert, Societe Generale Cross Asset Research - Equity Analyst [124]

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And then one question on the depreciation and amortization line, which you flag on Slide 48 to be around EUR 153 million. If I take last year's D&A line and adjust that for impairments and assuming PPA comes down by EUR 12 million. And I assume the EUR 59 million uplift of EBITDA from IFRS 16 I would end up close to EUR 193 million. What is the delta, please?

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Helmut Schmale, GEA Group Aktiengesellschaft - CFO [125]

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So what we had in last year is the impairments -- no the depreciation on purchase price accounting, which was a large contributor to the higher depreciation level, which we had in 2018. So this is why the depreciation was a level of EUR 183 million. What we are expecting now for the year 2019 is that we will have a depreciation of around EUR 150 million, which includes then also bit of higher investments, which we have made and the additional depreciation, which we expect from that.

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Sebastian Ubert, Societe Generale Cross Asset Research - Equity Analyst [126]

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But is that including the IFRS 16?

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Helmut Schmale, GEA Group Aktiengesellschaft - CFO [127]

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That is the all-in depreciation, which we are expecting.

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Fabian Kirchmann, [128]

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One more?

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Unidentified Analyst, [129]

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Sorry, one more question related to your work experience at Schuler. I think when you joined Schuler there was a strong boom in automotive CapEx and which you -- which the company enjoyed. And the integration and harmonization of the Müller Weingarten acquisition and the IT structures was put aside for a while to enjoy or to benefit from that growth. If we look at GEA now and you have sort of 3 to 5 year of IT restructuring and other things. If end markets would recover during that period, do you think GEA as an organization, it could digest participating in growth and restructuring at the same time? Or would you then also focus on 1 of the 2?

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Stefan Klebert, GEA Group Aktiengesellschaft - Chairman of the Executive Board & CEO [130]

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I think that is nothing, which is a problem for the organization because if it is thoroughly done the ERP change and the IT restructuring it can be introduced and rolled out country by country, legal entity by legal entity is also how I am -- I used to do that in the past. And I don't see any conflict with our -- with the potential economic boom or whatever this will be -- have a negative impact.

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Helmut Schmale, GEA Group Aktiengesellschaft - CFO [131]

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Actually, I need to correct myself in regards to the question to the depreciation, I have to clarify here you were right I was looking into the P&L before. IFRS 16. Yes, we need to add the IFRS 16 depreciation to that which brings it then to EUR 200 million.

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Fabian Kirchmann, [132]

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Okay, so then thank you very much for joining us here today for the analyst conference, and have a safe trip back. Thank you.

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Stefan Klebert, GEA Group Aktiengesellschaft - Chairman of the Executive Board & CEO [133]

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Thank you very much.

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Helmut Schmale, GEA Group Aktiengesellschaft - CFO [134]

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Thank you.