GEA Group presents its "Mission 26" strategy in London as part of its Capital Markets Day. The plan for the next 5 years defines seven key levers to accelerate sustainable, profitable growth. The focus is on sustainability, innovation and digital solutions, New Food, as well as excellence initiatives in sales, service and operations. The company is also looking at targeted acquisitions
"We have set ourselves the goal of being at the forefront of the mechanical and plant engineering industry," says Stefan Klebert, CEO GEA.
"We take it upon ourselves to protect future generations by offering sustainable solutions for the food and pharmaceutical industries. In these attractive markets, we want to continue to grow profitably while contributing to a better world, as anchored in our purpose - engineering for a better world."
“Mission 26” sets ambitious financial targets for 2026. Organic sales growth of 4.0–6.0% per year is expected, leading to sales of around EUR 6 billion (FY 2020: EUR 4.635 billion).
The EBITDA margin before restructuring expenses is projected to grow to a record level of more than 15% (FY 2020: 11.5%). The Group-wide return on capital employed (ROCE) is anticipated to increase significantly to more than 30% (FY 2020: 17.1%).
In the context of further targets, a stable ratio of net working capital to sales of 8.0–10.0% is expected by 2026. Capital expenditure (CAPEX) is projected to be around EUR 200 million annually until 2026.
Overall, this leads to strong free cash flow generation of around EUR 2 billion from 2022 until 2026.
"We are creating significant value for our shareholders through 2026 and beyond," says Marcus Ketter, CFO. "Our shareholders will participate in this success with sustainable dividend increases."
In June 2021, GEA presented its interim targets for reducing its own greenhouse gas emissions alongside its net zero ambition for 2040. Greenhouse gas emissions in Scopes 1 and 2 are to be reduced by 60% and in Scope 3 by 18% by 2030 (base year 2019).
The Science Based Targets initiative (SBTi), the globally recognised independent body for reviewing climate targets, validated GEA's CO2 reduction targets in September 2021.
SBTi thus confirms that GEA's interim targets follow the latest climate science and make an effective contribution to achieving the 1.5-degree Celsius target of the Paris Climate Agreement.
In addition to the climate targets already communicated, GEA has set ambitious ESG targets. Combined, these measures focus on environmentally sustainable customer solutions and responsible operations. Furthermore, GEA aims to be the employer of choice in the industry.
"Sustainability is firmly anchored in the company's DNA and is therefore also an essential part of Mission 26," says Klebert. "With our ambitious approach, we help our customers achieve their own environmental goals."
"Likewise, we strive for the highest standards in our operations and support our employees in developing their skills. In this way, we live up to our social responsibility and ensure GEA's lasting success."
"Innovation & Digitalisation" are also expected to make a significant contribution to realising the goals of “Mission 26.” Here, GEA aims to increase the proportion of sales of products that are less than 5 years old - from the current level of 10% to about 30%.
To fuel this development, GEA will increase its research & development spending by approximately 45% during the next few years.
In addition to introducing new products, GEA will offer customers more digital solutions to further enhance their processes and GEA machine efficiency.
To drive the digital customer journey and the development of digital solutions forward, these competencies haven been combined under the newly created position of Chief Digital Officer (CDO), effective 1 August 2021.
In the dynamically growing New Food market, GEA will expand its already strong position and become a market leader. Here, the company intends to leverage its strengths in scaling industrial applications and its unique position as a full-line supplier.
GEA anticipates order intake for newly developed and existing machines from this segment to exceed EUR 400 million per year by 2026.
"Consumer expectations around food are changing. For example, environmental impact and animal welfare are increasingly prioritised, and demand for high-quality, protein-rich foods is growing rapidly. GEA is optimally positioned to meet this demand," explains Klebert.
GEA has already demonstrated its strength in this dynamic market by winning one of the largest orders in the company's history: Novozymes, the world's largest supplier of enzyme and microbial technologies in Denmark, is entrusting GEA with the turnkey fitting of a large-scale plant in the US to produce plant-based proteins.
Further growth opportunities for "Mission 26" lie in sales, service, purchasing and production. In GEA's regions and countries, sales effectiveness and presence will be better exploited by deploying more of the company's own sales staff in key markets. Sales of new machines are expected to grow by 4.0–5.0% per year until 2026.
Further growth potential was also identified in the service area, which is a resilient and profitable business for GEA. The aim is to increase coverage and expand the service business with customers by 2026, thereby boosting recurring revenue. This approach is expected to generate annual organic revenue growth of 5.0–6.0% in the service business until 2026.
The optimisation measures announced at the 2019 Capital Markets Day impacting purchasing, production and logistics will be continued. In the process, purchasing activities were bundled in a central purchasing organisation, the production network was improved, and greater flexibility was created at sites.
The aim is to enable a transition to best-in-class procurement by 2026, further optimise the production network and reduce delivery times to customers.
"Global Operations is undergoing a comprehensive and long-term transformation process," explains Johannes Giloth, COO GEA: "In addition to cost reductions, this also involves creating structures for further growth."
"In this way, Global Operations will continue to have a significant positive impact on profitability in the future." Between 2022 and 2026, further optimizations in purchasing (EUR 90 million) and production (EUR 60 million) are expected to have a total net impact on EBITDA of EUR 150 million. GEA examines possible acquisitions.
Strong cash generation and a solid balance sheet will enable external growth. GEA will therefore examine value-enhancing acquisitions to strengthen its portfolio.
GEA confirms the guidance for fiscal year 2021 that was raised in July 2021. Organic growth of 5.0–7.0% is expected for revenue. EBITDA before restructuring expenses at constant exchange rates is anticipated to be in a range between EUR 600 million and EUR 630 million. The outlook for ROCE at constant exchange rates is likely to be in the range between 23–26%.
At the Capital Markets Day in September 2019, GEA communicated its targets up to 2022. In March 2021, when the annual figures for 2020 were presented, GEA adjusted its medium-term financial targets for 2022 upwards.
GEA has confirmed these again. Group revenue is expected to grow by an average of 2.0–3.0% annually from 2019 until 2022, the EBITDA margin before restructuring expenses is to increase to a target corridor of 12.5–13.5% (Capital Markets Day 2019: 11.5–13.5%) and the ratio of net working capital to revenue is to be reduced to the range between 8.0–10.0% (Capital Markets Day 2019: 12.0–14.0%).