Gea Group Ag Ord

Thank you for standing by. Welcome to the Gear Group AIG second quarter 2025 conference call and webcast. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be the question and answer session. To ask a question during the session, you will need to press star 1-1 on your telephone keypad. You will then hear an automatic message advising your hand is raised. To withdraw a question, please press star 1-1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to our first speaker today, Oliver Luckenbach, Head of Investor Relations. Please go ahead.

Thank you very much and good afternoon, ladies and gentlemen, and thank you for joining us today for our second quarter 2025 earnings conference call. With me on the call are Stefan Klevert, our CEO, and Bernd Brinker, our CFO. Stefan will begin today's call with the highlights of the second quarter. Bernd will then cover the business and financial review before Stefan takes over again for the Outlook 2025. Afterwards, we open up the line for the Q&A session. Please be aware of the cautionary language that is included in our safe harbor statement as in the material that we have distributed today. And with that, a hand over to Stefan.

Thank you, Oliver, and a good afternoon, everybody. It's my pleasure to welcome you to our conference call today again. In the second quarter of 2025, GEA has once again delivered a very good performance and continues to improve all major key figures. Autointel grows year over year by 5% in organic terms to 1.3 billion euros. Sales rose organically by 1.5%. As already mentioned in the previous quarter, the slower sales generation in the first half of this year is due to the order backlog composition at the end of 2024. We expect an acceleration in sales in the second half of this year. EBITDA before restructuring expenses increased by 8.1% year-over-year to €217 million. The corresponding EBITDA margin improved significantly from 15.2% in the prior year quarter to 16.5% in the second quarter of 25. This marks a new record level. Return on capital employed increased strongly and exceeded the 35% mark for the first time. We have achieved an outstanding ROCE of 35.3% in the quarter. Due to the very positive operating performance in the first six months and confident expectations for the remainder of the year, we had to raise our guidance for the financial year 2025 as announced last Thursday. We are now guiding organic sales growth to be between 2% and 4% for the full year 2025, up from the prior range of 1% to 4%. EBDA margin is expected to be in the range of 16.2 to 16.4%, considerably up from the prior guidance of 15.6 to 16%. The new guidance for return on capital employed is between 34 and 38%, clearly above the prior range of 30 to 35%. And we are also having another reason to be optimistic about the second half of this year. As most of you have probably seen, Ea signed one of its largest single orders to date. We expect to book this order in the second half of this year. Together with Palatnam, we will construct the world's largest integrated dairy farm and milk powder facility in Algeria. The new facility will significantly enhance food security and drive economic development in Algeria. The project will contribute to producing about 50% of Algeria's national milk powder needs. Here we cover the entire value chain of milk powder production, from dairy farming, to processing, to packaging of the final product. Milk powder production is scheduled to start in late 27, with gradual ramp up of production over subsequent years. Once completed, the facility will have the capacity to produce 100,000 tons of milk powder per year. The largest share of the order is assigned to our liquid and powder and farm technology divisions, but also our other divisions will contribute to this project. This lighthouse project underlines the attractiveness of GIA's integrated state-of-the-art technologies under one roof. But we are not only making progress in our traditional food markets. Three weeks ago, GIA opened its new food application and technology center in Janesville, Wisconsin, right in the heart of the Midwest, in the U.S. I had the honor of cutting the ribbon at this state-of-the-art facility, which focuses on alternative proteins and sustainable food. Here, we are offering an infrastructure for leading-edge food technologies, such as cell cultivation or precision fermentation. This center is a launchpad for the next generation of food and a major step towards our commitment to sustainable food solutions. This new facility expands the food technology hub at GEA's changeable campus which has served as a site for production, repair, logistics and training, power division, separation and flow technologies since 2024. With this campus, we are strengthening our North American footprint where demand from our US customers for local testing and development is growing. The center will give startups and all food innovators access to industrial grade equipment and together with gear experts, they learn how to efficiently scale their processes. After the test phase, GIA will be the first choice for helping customers produce sustainable food on a large scale. And once again, our sustainability efforts have been recognized. The Time Magazine and Statista identified the world's most sustainable companies of 2025. Over 5,000 companies were evaluated globally to identify the top 500 companies. And once again, GEA not only made it into the top 500, but we are now ranked number 12 globally, up from rank 33, which was already a fantastic position, in 24. And in Germany, we are even number two. This achievement underscores our position as a frontrunner in sustainability. Let me also give you some updates on the U.S. tariffs. We already provided an overview of how U.S. tariffs are affecting GEA in the last quarter. At this point, I would just like to add that we are even more confident than before that we do not expect any material impact from tariffs. First of all, we were able to pass through the additional costs to our customers. And secondly, all of our relevant competitors are also based in Europe and mainly produced outside the U.S. Therefore, GEA does not have any competitive disadvantage here. With that, I hand over to Bernd. Thank you, Stefan. Good afternoon, ladies and gentlemen. Let's start with order intake. Order intake rose organically by 5.0%, although we had no large order this quarter, a clear indicator of the robustness of our business model. In comparison, the prior year quarter contained four large orders totaling 98 million euros. Organic sales growth of 1.5% in Q2 was an improvement versus Q1 and was driven by solid growth in service sales, while new machine sales saw a slight decline. EBITDA before restructuring margin increased considerably by 130 basis points to 16.5% because of higher gross profit. The higher profitability also supported the return on capital employed development, which further improved to a new record level of 35.3%. Net liquidity decreased year over year by €92 million to a minor net debt position of €60 million, mainly due to the cash outflow of €415 million for the share buyback program and the dividend payment. As the share-by-back program has been completed, it won't have any further impact here, so that we would expect Cateris Paribus to return to a net cash position in the second half of the year. Looking a bit deeper into the group performance, order intake rose organically by 5.0% year over year, particularly on the back of a continued positive development of base orders and mid-sized orders between 5 and 15 million euro. From a customer industry perspective, dairy farming, dairy processing, pharma, and oil and gas were the main growth drivers. Other customer industries contributed as well, indicating a broad-based positive development in order intake. On a reported basis, order intake was negatively impacted by a €31 million translational FX effect this quarter. Sales grew organically by 1.5%, driven by solid organic service sales growth of 4.6% year-over-year, to which all divisions contributed. This marks the 19th consecutive quarter of organic service sales growth. New machine sales declined slightly by 0.6% year-over-year in organic terms. As already mentioned before, new machine sales are expected to accelerate in the second half of 2025. The service sales share increased year-over-year from 38.9% to 40.1%. When looking at the sales development on a reported basis, an adverse translational FX impact of 27 million euro needs to be considered, mainly driven by the US dollar and the Chinese renminbi. EBITDA before restructuring expenses rose by €16 million to €217 million, resulting in a corresponding year-over-year margin expansion of 130 basis points to 16.5%. This is an outstanding profitability improvement, marking a record EBITDA margin. Now, I will continue with the figures for the separation and flow technologies division, which reported strong order intake growth and a record EVTA margin. Order intake increased organically by 8.2% year-over-year, which was mainly driven by base orders below €1 million in size. From a customer industry perspective, dairy processing, pharma, and oil and gas were the main growth contributors, but Also, other customer industries, such as environmental applications, contributed here. So, overall, a quite broad-based order intake strength. When looking at the order intake development on a reported basis, an adverse translational FX impact of 10 million euro needs to be considered. Organic sales grew by 2.9% year-over-year, driven by a 5.7% increase in organic new machine sales. Organic service sales remained flat year over year due to a base effect. As you might recall, service sales in Q1 last year were impacted by a change of our logistics provider, leading to a one-off catch-up effect in Q2 last year. Given the pronounced impact of this catch-up effect in the prior year quarter, the flat development this quarter is a very good achievement. As new machine sales grew stronger than service sales this quarter, the service sales share decreased slightly on a high level from 50.6% to 49.2%. The better gross margin resulted in a significant year-over-year improvement of the EBTA margin by 300 basis points to 30.3% in the second quarter, exceeding the 30% threshold for the first time. Let's move on to liquid and powder technologies, where we have expanded our service business and further improved the EVTA margin. Order intake for the quarter was down organically by 10.7% year-over-year, as no large order has been booked this year. In comparison, three large orders totaling €83 million were booked in the prior year quarter. As two out of these large orders came from the customer industry beverage and one from chemicals, it is not surprising to see that those customer industries showed a decline this quarter. Despite the positive development in the customer industry's food, new food and dairy processing, they could not offset the decline in beverage and chemicals. And as Stefan said at the beginning of this call, the large order signed with Balatna recently is expected to be reflected in the order intake in the second half of this year. This quarter, an adverse translational FX impact of €11 million needs to be considered when looking at order intake. Sales declined by 6.6% year-over-year on an organic basis. Service sales continued its growth trajectory since Q4 2021, growing organically by 2.4% year-over-year. At the same time, organic new machine sales decreased by 9.7%, resulting from the lower order intake in the first half of 2024. As already mentioned, new machine sales are expected to improve in the second half of 2025 due to the higher expected conversion of large orders into sales which have been received in Q4 2024. EVTA before restructuring expenses declined slightly by €2 million year-over-year to €40 million. However, EVTA margin increased by 40 basis points to 10.6% in the quarter due to an increase in gross margin because of the positive product mix and better project execution. Operating costs remained stable year-over-year. Moving to food and healthcare technologies, which generated strong top-line growth and continued its sequential profitability improvement. Organic order intake increased by 10.0% year-over-year, although no large order was booked in this quarter. The prior year quarter included one large order of €15 million from the pharma industry, which led to a decline in this industry this quarter. However, growth in the customer industry's food and new food were able to offset the decline in pharma. When looking at the order size brackets, mid-sized orders between 5 and 15 million showed a strong development. Sales grew organically by 12.2% year over year, with contributions from both new machine and service business. New machine sales showed an extraordinary organic growth rate of 15.3%, while service sales grew also well by 6.9% organically. The service sales share decreased slightly from 35.8% to 34.5% on the back of the strong increase in the new machine business. The EBITDA margin continued its quarter-on-quarter improvement since its low point of 6.1% in Q2 2023. EBITDA before restructuring expenses reached €35 million, with a corresponding margin of 13.2% in the quarter, significantly up from 9.8% in the prior year quarter. Main drivers behind this profitability expansion are a significantly better gross margin and higher sales volume. Continuing with farm technologies, which recorded significant order intake growth this quarter. But let me give you some more details here. Order intake increased organically by 34.3%, 34.3% year over year. This marks the highest growth rate since Q2 2021. The pickup in the new machine business, and here especially in automated and conventional milking systems, were the key drivers behind this remarkable growth. The market improvement, which began in December 2024, continued steadily throughout the first half of 2025. This was largely driven by robust milk prices and the introduction of new product features. This favorable environment contributed to the notable increase in order intake, which is expected to remain on a high level for the remainder of the year. Organic sales decreased slightly by 1.6% year-over-year, still reflecting the impact of a low starting order backlog in the new machine business at the beginning of this year. New machine sales experienced an organic decline of 8.9%, which could not be fully offset by the strong organic growth of 6.3% in the service sales year over year. As a result, the service sales share rose from 47.7% to 51.1% in the quarter. EVTA before restructuring expenses declined slightly by €2 million to €26 million due to lower sales volume. The corresponding margin decreased by 50 basis points to 14.4% in Q2 2025. And finally, let us turn to heating and refrigeration technologies. This division delivers strong sales growth combined with further EBITDA margin expansion. Order intake declined slightly by 2.2% organically year over year, mainly due to lower volume of orders in the ticket size between 1 and 5 million euro. The customer industry's beverage, energy, and oil and gas were the end markets with the strongest demand development, which was, however, offset by the decline in food. Sales rose strongly by 5.8% organically, mainly driven by a significant organic increase of 12.8% in service sales. The new machine business grew by 1.4% organically at a lower rate than the service business, so that the service sales share increased from 38.2% to 40.8% in the quarter. EVTA before restructuring expenses rose by 13.4% to €20 million due to an improved gross profit resulting from higher sales volume and a positive mix. The corresponding margin of 13.6% showed an expansion of 110 basis points compared to the margin in the prior year quarter. Closing the divisional chapter with the overview on the EVTA contribution in the first half and in the second quarter of 2025. There are two important messages. Firstly, we have been able to increase our EVTA before restructuring expenses in those time periods considerably, despite facing stable or even higher operational costs in most cases. Almost all divisions contributed to this positive development. The very strong performance of separation and flow technologies as well as food and healthcare technologies were the main contributors in Q2 and also in the first half of 2025. And secondly, we have managed to improve or at least to keep gross profit stable in most divisions. This is due to a strong service business and better margin quality in the new machine business. But it also reflects GEA's price and cost discipline, as well as savings from our procurement and production optimization efforts. Coming now to another important topic, which is networking capital. In a year-over-year comparison, networking capital declined by 64 million euro to 422 million euro. This reduction results from the continuous focus on working capital optimization and includes structural improvements showing a positive impact in the quarter. Lower inventories, higher trade payables, and lower trade receivables. The reduction in contract liabilities was partly compensated by lower contract assets. The resulting net working capital to sales ratio of 7.8% puts us comparatively below the midpoint of our guided corridor of 7 to 9%. Free cash flow has been solid for the second quarter, but let's have a look at the details. Operating cash flow of 82 million euro was driven by a net working capital outflow of 42 million euro and a 64 million euro outflow in what is summarized as the bucket others. which mainly results from miscellaneous balance sheet movements like VAT and non-cash translational FX effects. Main reasons for the networking capital outflow were higher quarter-on-quarter inventories and trade receivables. The capex-related outflow of 59 million euro has been in line with our full year 2025 guidance of around 235 million euro. As a result, free cash flow stands at 38 million Euro, leading to a net cash flow of 14 million Euro after deducting these payments and interests paid. When looking at the quarter-on-quarter net cash development, the cash out for the recently concluded share buyback program, as well as the dividend payment, need to be considered. As a result, the quarter ended with a minor net debt position of 60 million euros. This leaves us plenty of headroom to do M&A once we identify the right targets in terms of strategic fit and value creation potential. The cash flow generation over the last four quarters has been strong, reaching 468 million euros. The corresponding cash conversion ratio, which indicates how much of the EBITDA before restructuring expenses has been converted into free cash flow before restructuring expenses, landed at a solid 55%. With that, I hand back to Stefan for the outlook. Thank you, Bernd. Before talking about the fiscal year guidance, let me share with you our view on the current order intake situation. As you know, large orders can be lumpy and we cannot perfectly forecast when orders will be signed. This quarter we saw a perfect example for this. Although we negotiated several projects, we did not even book a single large order in Q2. However, four weeks later in July, we signed one of the largest single orders for GEA to date and there is more to come. Therefore, it makes more sense to look at our order intake development on a rolling last four quarters perspective. Here it becomes clearly visible that the second quarter of last year marked the lowest point, and that we have seen good order intake developments since then. This trend also continued in the second quarter this year, and we are quite optimistic that it will persist in the coming quarters. As already mentioned at the beginning of today's call, we have increased our guidance for 2025 based on the very positive performance in the first half of this year and the promising expectations for the second half of 2025. Despite the volatile environment, IA's positive journey continues. Our improvements are broad-based, supported by a healthy order situation, accelerating revenue growth and margin improvements across the group. Also going into 26. Once again, we are proving our strength in executing our plans. Finally, our roadmap for 25. The next important date will be the release of our third quarter results in November 6th. In the meantime, we look forward to seeing many of you at the upcoming roadshows and conferences. Bernd, the investor relations team, and I will be meeting investors until the end of September. This concludes my presentation, and I hand back to Oliver for the Q&A session.