GEA Group Aktiengesellschaft (G1A) Earnings Call Transcript & Summary

Good day, and thank you for standing by. Welcome to the GEA Full Year 2021 Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded, Thursday, the 3rd of March 2022. [Operator Instructions] I would now like to hand the conference over to your speaker today, Rebecca Weigl. Please go ahead.

Thank you very much, Heidi. Good afternoon, ladies and gentlemen, and thank you very much for joining us today for our full year and fourth quarter 2021 earnings conference call. With me on the call are Stefan Klebert, our CEO; Marcus Ketter, our CFO; and today, also our COO, Johannes Giloth. Stefan will begin today's call with a highlight of fiscal year 2021. Marcus will then cover the business and financial review. And afterwards, Johannes will continue with an update on operational excellence before Stefan takes over again for the outlook 2022. Afterwards, we're going to open the call for the Q&A session. As always, I would like to start by drawing your attention to the cautionary language that is included in our safe harbor statement as in the material that we have distributed today. And with that, I will hand over to Stefan.

Thank you, Rebecca, and good afternoon, everybody. It's my pleasure to welcome you to our conference call today. I hope you and your families are still doing well in this extraordinary time. Our thoughts are, first and foremost, with the people of Ukraine and our employees in the region. GEA has taken various measures to ensure the safety and well-being of our team members and their families, and we have established a crisis team to closely monitor the situation. Our hope is for a fast resolution of the conflict and the return to lasting peace in the region. Let me start with a quick review of what we have achieved in '21. Once again, we significantly improved our financial performance indicators, good top line growth and further advances in profitability and capital efficiency. Regarding ESG, we launched our new sustainability strategy. Our efforts were already rewarded with upgrades from ESG rating agencies, and this motivates us to continue with our bold actions, and we stay at the forefront of the ESG development. At our Capital Markets Day in London, we presented Mission 26 with our midterm financial and nonfinancial targets. This is a 7-pillar plan, which enables us to improve and uphold the success of GEA. We completed our portfolio planning process, which we started in 2019. Just 2 days ago, we announced the closure of the last deal. We initiated a EUR 300 million share buyback program. As you know, we would like to have another attractive currency for potential acquisitions beside to cash. And finally, and I believe this is the most important achievement, we regained the trust from investors and analysts. The share price development as well as the expansion of our trading multiples imply this assumption. This is also underlined by the feedback and comments from analysts and investors. I'm very proud about the achievements, and that we turned GEA to a highly profitable and successful company again. This was only possible with a highly motivated team. Therefore, I would like to give a huge thank you to all GEA employees across all regions, divisions and functions, very well done. In 2021, total shareholder return was, in '21, 68.2%, well above our benchmark such as STOXX, TMI Industrial Engineering, the DAX 50 ESG as well as the MDAX. This is the highest return the GEA share has accomplished within the last 10 years, and in my opinion, proves that the confidence in the GEA is reestablished. In the interest of an attractive dividend policy, we have decided to adjust our dividend policy to the following: we aim to pay a dividend that is EUR 0.05 higher than the previous year's figure. This already applies to the dividend proposal for the fiscal year '21. Hence, we proposed a dividend of EUR 0.90 per share, up 5% -- EUR 0.05 versus last year. Let me summarize what we achieved in '21. Orders grew strongly by 14% organically year-over-year, clearly surpassed the EUR 5 billion threshold with EUR 5.22 billion, we reached a level for order intake, which have last seen in 2013. At this time, still including, by the way, the Heat Exchanger business. Sales grew by 4.3% organically year-over-year to EUR 4.7 billion. Due to some bottlenecks in our supply chain, we ended the year below our guidance range of 5% to 7%. EBITDA before restructuring expenses increased to EUR 725 million, close to the upper end of our adjusted guided range of EUR 600 million to EUR 630 million, which we have upgraded last summer. This is quite an achievement because the EUR 625 million include headwinds from price increase of our suppliers of EUR 28 million. The EBITDA before restructuring margin rose by 1.8 percentage points to 13.3%. Finally, ROCE improved significantly by 10.7 percentage points to 27.8% on the back of improvement of EBIT as well as capital employed. Summing it up, '21 was a very good year for GEA with an acceleration of profitable growth. Also from a nonfinancial reporting perspective, '21 was a very successful year. We launched our climate strategy in June and are one of the industry pioneers committing to a net zero target until 2040 as well as ambitious interim targets until 2030. We also became a member of the Alliance of CEO Climate Leaders, which is a global community of CEOs from major corporations in different sectors. This community was established by the World Economic Forum to support the transition to a net zero economy. Few months later, we presented our comprehensive sustainability strategy, including 15 clearly defined ESG targets as 1 of the 7 pillars of our Mission 26 at our Capital Markets Day in London. Furthermore, we signed the UN Global Compact, agreeing to conduct business in line with 10 universal sustainability principles, encompassing human rights, labor standards, the environment and anticorruption. Finally, our Heating & Refrigeration Technology division joined the Cool Coalition of the UN Environment Program to share its expertise in the transition towards climate-friendly cooling and heating solutions. All these efforts to become an even more sustainable company were acknowledged and rewarded by ESG rating agencies, translating, for example, into a gold rating from EcoVadis, Prime Status in the ISS ESG Corporate Rating, an upgrade from A to AA in the MSCI ESG Ratings assessment, and we achieved to score a AA for climate change and water security by CDP. This puts GEA in second place among the top 14 German companies on CDP's A List and above both the European and regional sector averages. We are very proud about these achievements, but do not want to rest on them. We are already working on all the targets set in our sustainability strategy, and we will transparently communicate our progress towards them in our sustainability report. This enables our investors to track our performance. Let me close this chapter with some news from the most recent past. Since January of this year, we are officially supporting the Task Force on Climate-related Financial Disclosures, the TCFD. While we have been already orienting ourselves to this standard in the past, this last step to become an official supporter and to completely integrate climate-related risks and opportunities in our enterprise risk management have been missing. In '22, we aim to expand the analysis and disclosure of climate-related aspects in accordance with the recommendation of the TCFD. At our Capital Markets Day in September, we outlined our exposure as well as our strategy to benefit from the growth in the fast-growing market of alternative protein processing. Shortly after the CMD with our Q3 reporting, we disclosed the booking of one of the largest order in the history of GEA, and this was in the area of new food. And the success story continued in Q4, we secured another large order in this category. For '21, the new food-related order intake exceeded EUR 120 million as we have promised at the Capital Market Day. Finally, let me give you an update on our share buyback program. As per end of December, we already spent EUR 94 million of the planned EUR 300 million, which equals about 2.3 million shares. The average price for these shares is EUR 40.82. And let me share with you the current numbers per end of February, we have spent roughly EUR 130 million out of the planned EUR 300 million and bought back almost 3.2 million shares at an average price of EUR 41.18. With that, I hand over to Marcus, who will take you through the financials of the quarter.

Thank you, Stefan. Also a warm welcome from my side to everyone here on the call. Starting with the headline numbers of Q4 2021. Order intake increased organically by 5.5% year-over-year. The total volume from large orders was worth EUR 74 million on prior year's level. In this year's as well as in last year's Q4, we received 3 large orders. Sales was up by 5.3% year-over-year on an organic basis, driven by both service and new machines. EBITDA before restructuring margin reached 14% and was driven by an improved gross margin resulting from the Service Business and lower overheads. Due to the further reduction of net working capital, ROCE improved, as Stefan already mentioned. Furthermore, our net liquidity more than doubled, increasing by EUR 255 million to EUR 500 million. In addition, our shares were bought for EUR 94 million and held as treasury shares. So all in all, a very successful quarter. Looking a bit deeper into the group's performance. Order intake grew to almost EUR 1.3 billion, except for Farm Technologies, which is now facing the challenging comparable order intake value of last year. All divisions contributed to the order intake growth. Food & Healthcare Technologies grew orders even by double-digit organic rates. Sales continued its growth trend of the prior quarters coming also closer to the EUR 1.3 billion mark. While service sales grew by 4.5% organically year-over-year, the growth rate of new machines was with 5.7%, even stronger. The service sales share was 34.2%, slightly higher than last year. The higher sales combined with an increase in the gross margin and lower overhead costs resulted in an EBITDA of EUR 180 million and EUR 38 million improvement versus Q4 2020. When looking at the EBITDA margin, we are talking about an impressive year-over-year improvement of 2.5 percentage points. Now let me continue with the figures for the division Separation & Flow Technologies, which had again a very strong year. Order intake grew organically by 4.5% year-over-year. Demand was strong in the customer industries dairy processing, chemical and marine. From a size perspective, especially the orders [ grew ] EUR 1 million, where the growth driver by the year-over-year improvement. The order pipeline looks overall positive due to expected good demand from dairy, dairy alternatives, chemical and pharma. Organic sales grew by 4.3% year-over-year with service growing by 4.8% and new machines growing by 4%. Order backlog is very close to the record level of Q3 2021, and therefore, is a very good basis for our future sales growth. EBITDA increased strongly by [ EUR 83 million ] and the EBITDA margin improved by 4.7 percentage points to 25.6%. This development was once again driven by better service and new machines margin and better capacity utilization. Gross profit was significantly higher and operating costs were lower than the last year's level. Liquid & Powder Technologies. Order intake increased organically by 6.7% year-over-year. This development was driven by 3 customer industries: first, chemicals, where we booked some medium-sized orders, including one for the processing of lithium; second, food, here we booked another large order, EUR 90 million in new food; finally, dairy processing, we received 2 large orders and some midsized orders. As we always receive questions about the healthiness of the order pipeline, let me address this topic proactively. We do see a good flow of inquiries and the hot list for projects for the entire year looks good across all customer industries. Especially in new food, we are monitoring a very dynamic development. Sales of LPT increased by 2.2% year-over-year on an organic basis. Growth came exclusively from service sales, which increased by 8.9% year-over-year organically. The sales [ point of ] the new machine business, which is in the case of LPT, a project business, was negatively impacted by supply chain bottlenecks, which made it difficult for construction sites to operate smoothly. Despite the strong organic service sales growth, the service sales share dropped, however, by only 0.7% to 22.7% due to internal structure effects, allocating reporting units correctly to divisions, which you know, we mentioned that in our earlier calls. Order backlog of LPT, it has reached now a new record level with EUR 1.35 billion. Sales momentum should pick up in 2022, therefore. EBITDA before restructuring expenses increased by EUR 3 million to EUR 47 million, and the margin improved by 9.9% -- from 9.9% to 11%, while operating costs remained on prior year's level. Improvement in gross profit from better new machines and service margins was the driver of the EBITDA increase. Continuing now with Food & Healthcare Technologies. Order intake increased organically by 11.3% year-over-year. Growth was driven by good demand for food across most business units like bakery, slicing and packaging and food solutions. Going forward, we expect that these markets will continue the positive performance in the short term. Pharma will be more challenged to further improve their order intake in 2022, given the high amount of order intake in 2021. Organic sales growth was 3.7% year-over-year and was driven by new machine sales, which grew organically by 4.9% year-over-year. Order backlog, which is 26% above last year's level, indicate an increase in sales momentum apart from market-related supply chain issues. EBITDA increased strongly by EUR 11 million, and the according margin improved to 12.4% from 9.1%. Q4 saw a very strong increase of gross profit resulting from higher margins in both the service and new machine businesses, better execution as well as better mix. Moving on to Farm Technologies. Farm Technologies had 4 consecutive quarters with double-digit organic order intake growth from Q3 2020 onwards and is now, not surprisingly, experiencing a slowdown in order intake. For the first half of this year, one should therefore not be surprised by declining organic order intake growth rates. Farm Technologies organic growth rate in the first half of '21 was more than 30%. Order intake in Q4 '21 was down by 7.1% year-over-year in organic terms, mostly driven by milking systems, automatic and conventional, whereas manure was on prior year's level. Overall, the industry sentiment is still favorable. Farm Tech milk prices remain at relatively high levels. Farmers are partly reacting on increasing material, higher feed and fuel prices with investing into new equipment to achieve efficiency gains. Contrary to order intake, sales increased organically by 10% year-over-year. This very satisfactory development was driven by organic new machine sales being up by 16.6% year-over-year. This is a result of the strong order intake development over the prior year quarters and the only reason why the service sales ratio is down by 1.5 percentage points to 41.7%. Service sales grew organically by 3.7% year-over-year. EBITDA increased by EUR 2 million; and the according margin improved to 12.2% from 11.4%. The higher EBITDA was driven by a reduction of operating costs while gross profit was very slightly below last year's level. This very slight and temporary decline was mostly caused by relocation of hygiene product producing factory as well as a time lag between price increases and inflation of material prices. Finally, let us turn to Heating & Refrigeration Technologies. Order intake increased organically by 8.7% year-over-year. Please note that the decline of the reported figure is due to the disposal of Bock earlier this year and the disposal of the contracting business in Italy and Spain in Q4 2021. Going forward, we expect an increased demand for heat pumps. Furthermore, postponements of orders from '21 could also positively impact order intake this year. Organic sales increased by 3.7% year-over-year and was driven by new machine growing by 4.9%. Service sales grew organically by 1.7% year-over-year, and it share increased by 3.1 percentage points to 39.7%. The increase is also driven by the disposals of Bock and the contracting business mentioned earlier. EBITDA before restructuring expenses increased by EUR 2 million to EUR 15 million and the margin improved from 7.4% to 9.9%. A decline in gross profit driven by the portfolio pruning measures was more than compensated by a reduction in operating expenses. Closing the divisional chapter now with the overview. And as you can see, all 5 divisions contributed to the EBITDA improvement. On a reported basis, 2 divisions had lower sales in the quarter, only at Liquid & Powder Technologies. Heating & Refrigeration Technologies sales declined due to supply bottlenecks as well as negative M&A effects. All divisions apart from Farm and Heating & Refrigeration increased gross profit. At Farm Technologies, the issue is temporary and at Heating & Refrigeration, is related to negative M&A effects, as mentioned earlier. Operating costs are well under control and only increased at Food & Healthcare due to internal structural changes. In total, EBITDA before restructuring increased to EUR 180 million from EUR 142 million. On the right side of the chart, we deducted the translational FX effect of EUR 3 million. Excluding this FX effect, as we have defined in our full year guidance, our EBITDA would have been improved by EUR 35 million to EUR 177 million. Now coming also to a very good figure, which is net working capital over sales ratio, which is at 5.1%. This is a new record level for our net working capital over sales. Net working capital declined year-over-year by EUR 127 million to EUR 240 million. This improvement came especially from the division's Liquid & Powder, Food & Healthcare as well as Heating & Refrigeration Technologies. The most significant improvements were achieved at net contract assets, trade receivables and trade payables. Inventories increased year-over-year by EUR 91 million and were sequentially almost unchanged. In a normal year, inventories would sequentially decline from Q3 to Q4, but inventories are up due to the high order backlog as well as due to higher work in progress. With the implementation of the new net working capital management processes in the second half of 2019, we have not only substantially improved the net working capital over sales ratio, but also reached new record levels. Coming now to another important topic, cash generation. Operating cash flow was EUR 282 million, which is below last year's figure of EUR 328 million, mainly driven by a lower contribution from net working capital reduction. However, this is easily explained by the fact that net working capital was at the end of Q3 '21 with EUR 333 million, already EUR 249 million lower than a year before. Therefore, the potential of a net working capital reduction in Q4 of last year was considerably lower, meaning Q4 of '21. CapEx-related outflow is EUR 20 million higher than last year's, resulting in EUR 63 million. As a result, free cash flow is with EUR 240 million lower than last year's EUR 287 million. Our free cash flow conversion ratio before restructuring has been really good in the last 4 quarters, clearly exceeding our targeted conversion ratio of 55% to 65% of EBITDA. 97% of EBITDA has been converted into free cash flow on the last 4 quarters trailing basis. Net cash, including these liabilities, improved from EUR 359 million at the end of the third quarter to EUR 500 million, driven by a strong net free cash flow of EUR 196 million, and includes EUR 54 million outflow for share buyback program in Q4 only. In total, we bought back shares in the amount of EUR 94 million in 2021. Let me talk now about our financial headroom. On the left, you see our available cash credit lines as well as their respective utilization and maturity structure as per end of '21. In December '21, an European Investment Bank credit utilization of EUR 150 million was repaid earlier due to our very good liquidity situation. Our current liquidity profile with almost EUR 1 billion cash is sufficient to cover our needs. The EUR 88 million due to this year constitute evergreen credit lines and the facilities due in '23 and '25, each constitute borrower note loans. Continuing now on the right side of the slide, the reason for the decline of the financial headroom is, on the one hand, explained by the cancellation of our unused credit line with the European Investment Bank of EUR 100 million. And on the other hand, a syndicated credit facility of EUR 200 million, which was solely set up due to the uncertainty from the global pandemic, and we did not prolong this with the expiration in August '21. All other KPIs in this table have improved compared to last year's Q4, especially the positive trend of our net liquidity, including lease liabilities, which has been continually improving by EUR 255 million year-over-year to EUR 500 million. Coming to order backlog as we do often receive questions on how much of our order backlog is invoiceable. Each year, we have prepared this overview for you. Our order backlog increased to EUR 2.8 billion from EUR 2.3 billion. Of this EUR 2.8 billion, EUR 2.5 billion are to be invoiced in '22 and EUR 0.3 billion are to be invoiced after '22. Compared to the previous 2 years, there's a significant increase in the invoiceable backlog for the current year. This is a great basis for sales development in '22. And with that, I hand it over to Johannes, who will give you an update on our operational excellence.

Thank you, Marcus, and welcome from my side. I'd like to focus on 2 major challenges, but also achievements in 2021 and the outlook for 2022. One is the continued increase of raw material prices and the other one is the continued supply chain bottlenecks. Starting with 2021. In 2021, the total impact of global price increases amounted to EUR 28 million. Despite the challenging market situation, our procurement teams delivered EUR 43 million of savings across direct and indirect categories, which was well above our own forecast from the Capital Market Day of EUR 34 million. Thus, total net savings amounted to EUR 15 million, and we have avoided further negative impact as we were benefiting from long-term contracts and especially, active spend management. I'd like to give you an example how we manage the costs in the area of logistics and transportation. With a continued focus on cost negotiations, mode and route optimizations and proactive measures, we reduced GEA's logistics cost ratio as a percentage of sales by 15% from the starting point 2019 to 2021, despite all the significant increases we have seen and we have faced in the freight markets in 2021. That's a good example how GEA was able to fight the significant cost increases in many other categories as well. But the most challenging part is still ahead of us, which is the 2022. The global supply chains are under pressure from the past 18 months. First, it was COVID-19 related, then it was global material shortages, and now we have new geopolitical tensions on top. This requires us to act and adopt even faster than in the past. The expectation for the current fiscal year is that we will phase up gross EUR 120 million up to EUR 120 million market-driven cost increases throughout all categories. These cost increases figure is driven by both direct costs, for example, for electrical components or steel-related products as well as indirect cost categories for energy, logistics and labor. In addition to the cost increases, we are facing continuous delivery shortages and reliability issues with our suppliers in several categories like electronic modules, drives or, for example, cable. We expect this to be a continuous challenge during 2022, and that is also the reason why we have put together many task forces to counter those effects. Overall, the market situation is currently volatile, amplified with the recent geopolitical tensions. The visibility is limited, but we have implemented those dedicated task forces, which are very closely monitoring the availability of the suppliers' prices as well as the development of the impacted markets. Those teams are focusing on both managing the cost increase and ensuring the material availability for our production. In 2022, therefore, we have a line of sight of up to EUR 48 million of savings. In addition, we expect to achieve these savings through leveraging preferred suppliers, establishing alternative suppliers, redesign our products using alternative components and with a continuous cost control, like I mentioned, for the logistics costs. The entire procurement team pushes for strict internal budget control in addition. And in cooperation with our sales teams, we are implementing necessary price adjustments on the customer side to mitigate these cost increases, which cannot all covered by our saving measures. The procurement team is collaborating a lot with our engineers to develop future solutions, ensuring component availability and at the same time, achieving cost savings ongoing with service excellence. In parallel, we have successfully deepened our relationship to our strategic suppliers, and we are making very good progress in improving the material availability to support the planned sales growth in 2022. Indeed, the reliability of the major suppliers is increasing steadily. Thus, supplier management is a very highly important topic. This includes a further development of strategic supplier relationships as well as multi-sourcing options we are introducing as we speak. We improved the internal processes significantly, which enable us to react faster on external developments. We have the right setup to maneuver now through the current uncertainty and to mitigate the upcoming supply chain risk as much as possible. In total, we are still on track to achieve the targeted contribution from the operations of our procurement structures, and we are confident to neutralize the described headwind with the described measures I just laid out. With this, I'd like to hand back to Stefan for the outlook.

Thank you very much, Johannes. We thought it's a good idea to include Johannes in the call today because of the final numbers from last year and also about the very special situation which we are facing at the moment worldwide. And I have to say that Johannes contract was extended yesterday by the Supervisory Board. So he is with us for the next 5 years as well, and he did a great job with his team during the last 2 years, and I can say that we are really on a much, much more professional level in purchasing than this company ever was before. So let me now come to our outlook for the fiscal year '22. Due to an organic increase of our order intake of 14% in full year '21, our backlog reached at EUR 2.8 billion, a new record level and is up 21.2% year-over-year. This is a great foundation for growth in the current fiscal year and indicate solid organic sales growth ahead. However, as we keep a very close eye on potential challenges for the execution of orders, we identified: first, shortages of supplies; second, inflation; and third, the war in the Ukraine as potential risk factors for '22. Taking the backlog development as well as the challenges into account, we guide for an organic sales growth of more than 5%. And this translates into an EBITDA guidance before restructuring expenses of EUR 630 million to EUR 690 million and for a return of capital employed, a range of 24% to 30%. Let me also make here a comment. There is a lot of uncertainty in that world as we all know, but I also can tell you that we are clearly targeting here for increasing margins and for a minimum 13.5%, which we want to see as a margin in this year. So please bear in mind that the guidance for EBITDA and for ROCE is based on constant exchange rates, and please bear in mind as well that the potential negative effect of the current conflict in the Ukraine can currently not be reliably assessed and quantified. Let me share with you some facts on our exposure to Russia and Ukraine. Russia accounted for roughly 3% of our order intake in the full year '21. We do have 3 production sites in the country and around 450 people. Ukraine accounted for less than 1% of group order intake. We have no manufacturing sites in the Ukraine, which also explains why the number of employees is around 50 and significantly lower than in Russia. Immediately after the news of the war broke, we established a crisis management team taking care and ensuring safety of our employees, securing our business, evaluating the impact on our business and tracking the latest developments. Therefore, risk from the direct exposure to Russia and Ukraine appears manageable from today's perspective and does not have an material impact on our guidance range. Contrary, the negative effects from the indirect exposure can currently not be reliably assessed. So what does that all mean for our EBITDA development in '22? Let's have a look at the components of our EBITDA bridge. Starting from the left, we will face increasing direct and indirect cost. Johannes gave you already an update with useful information about this cost basket. Wage increases will slightly more pronounced than in the prior years, and costs for our global SAP program and missing profit of disposed assets will come next, but are in relation to all other buckets relatively minor. These are the headwinds, let me now elaborate on the positive contributors. Starting with savings from production and procurement, which Johannes has already outlined. We have talked about pricing initiatives in the past a lot, and we will continue to pass higher costs on the supply chain to our customers. We expect to grow sales at least 5% organically, which means that we will see the according positive contribution also in the bridge. There is just one question mark, which are possible indirect effects coming out of the Ukraine war? These potential risks cannot be assessed reliably right now. Despite the Omicron wave in the generally tense global situation, we have so far made a good start into '22, but we have ambitious plans for the coming months as well. To make this year another success, we will put a special priority on a number of issues, both on strategic and operational sides. In particular, we will continue to deliver on what we have committed to with Mission 26. Our corporate strategy, we presented to you in September. And recent months, we have already launched numerous promising initiatives, projects and work streams in our 7 key growth levers. We will now pursue them at full speed. We also need to continue to rigorously implement our global SAP rollout. On the operational side, we proactively managed the impact of cost increases in many areas as well as bottlenecks in global supply chains. We are doing this through price adjustments on the customer side, but also through various measures in our procurement processes and in optimizing our own supply chains. In addition, numerous efficiency measures are also contributing to an improved operational performance. This will help us to make our organization even more flexible and effective this year. All these strategic and operational priorities will enable us to deliver on our guidance for '22. Finally, this brings me to our roadmap for '22. The next important date will be in less than 2 months with our Annual General Meeting on April 28. Due to the still ongoing pandemic, it will be once again a virtual Annual Shareholder Meeting. This concludes my presentation, and I hand back to Rebecca for the Q&A.

Thank you very much, Stefan and Marcus and Johannes for presenting the information for today's conference call. And now we are happy to take your questions.

[Operator Instructions] Your first question comes from the line of Klas Bergelind from Citi.

Klas at Citi. So a couple of questions from me. Sorry to start on Russia, Ukraine, but I just want to understand the exposures better, Stefan. We have the share of orders. Is that different versus what's in the backlog at the moment? So I just want to make sure I understand the total exposure. And then you said that there are 3 plants there in Russia. Are much of those are exports? I'll stop there.

Okay. So Klas, thank you very much for your questions. The first question, no, there is no difference. That is same. And concerning our factories, they are not relevant for exports. So we are not depending on the factories in Russia for any other operations.

Okay. Very clear. And my second one is on orders. I get the preordering in Farm Tech, but I was wondering if you saw any effect from this elsewhere, especially in Separation & Flow, where I at least had expected a bit more order strength. I heard you on HRT, where there was an opposite effect. Orders were pushed to the right a timing issue, but I'm keen to understand if there was any preordering also outside of Farm Tech?

No, we don't see any preordering situation here. It's not -- that has also to do with the nature of our business. Let's say, if we would sell control systems or so, people -- our companies might have a tendency to say, if there is a longer delivery time, let's order 3, then we get 1 when we need it. But thinking about the nature of our business, let's say, nobody is ordering 2 or 3 separators, if we need only 1 or so. So this is something we can, I would say, very much exclude in all the other divisions, except the Farm Technology, where we had this acceleration effect also by clearly communicated price increases and this is what we saw there.

Okay. Very clear. My very final one is on maybe one for Johannes. How much is energy within the EUR 120 million in cost inflation? I'm trying to understand the incremental possible impact on the back of what we see over the last week. And maybe you have provided this, and sorry if I don't know this, but could you please remind us of how much is renewables on PPAs versus conventional energy? And how are your contracts working at the moment? And also, how should we think about your logistics costs within the EUR 120 million? I know you have very favorable development year-over-year in 2021, but how much do you see this increasing within the EUR 120 million?

That was an interesting one question. Actually, we have 10. Let's start with the energy. We have been benefiting last year from long-term commitments, which were expiring by the end of the year and that was replaced by a batch discussion. So we are buying our energies in batches. We have locked in the budgets for the first quarter and partially for the second quarter. So for that, our prices are hedged. Indeed, then beyond the second quarter, we need to buy new batches. And our energy costs are amounting for EUR 15 million to EUR 20 million a year. And then we are foreseeing out of those EUR 120 million cost increase exposure. And I would like to express that this is a risk what we are putting in on the maximum range of up to 10% in average because that is including also other areas. When it comes to logistics and warehousing, you're completely right. We have been through our spend management and change of mode of transportation, we're able to fight the price increases, the cost increases. We also were suffering from price increase, but overall, the net costs were not increasing due to the change in the mix and that is exactly what we are continuing to do. And we can apply that logic also not only to logistics, but also, for example, with the energy, where we are looking into less energy consuming areas where we're also reducing our real estate, for example, in some of the areas. There's a lot of cleanup activities, which are positively contributing to that. And therefore, we are only coming to that exposure of that up to 10%. When it comes to the energy in the energy mix, we are more and more buying green energy, green power. That is in Germany, we are fully on green electricity meanwhile, and that is now a process which is ongoing in our areas of the sustainability measures.

One quick follow-up, Johannes. So you said, up to 10% as a worst-case scenario for the year of the EUR 15 million, EUR 20 million base. I just want to understand what you said there in terms of a risk scenario beyond the second quarter?

Yes, that's the assumption which we are now putting together. That is obviously changing on a day-to-day basis in the last days because of the Ukraine situation. That was without the Ukraine effect on possible explosions on gas or energy.

Your next question comes from the line of Akash Gupta from JPMorgan.

I have 2 questions as well. The first one is on supply bottlenecks. And maybe if you can elaborate, where do we stand on these issues right now, which are the areas, geographies and components that are driving it? And have you seen any progress in the first couple of months? And maybe a follow-up on that supply bottlenecks because you have seen some sales being pushed out from Q4 to 2022, is it fair to expect that Q1 on revenues could be somewhat stronger than what we have seen in the prior years? So that's question number one.

Okay. When it comes to supply bottlenecks, and I think everybody is aware of the semiconductors and the related topics to it because it's more or less crumbling through the entire supply chains from semiconductor deliveries to module deliveries and so on. What we see is that we are seeing a better reliability from some of the suppliers. A crisis is always twofold. It's about availability and reliability, and the availability is not getting significantly better, but the reliability is becoming better. Some companies like Siemens have seen a significant improvement here. So that gives us an indication that we have reached the top of the crisis, and from now on, we are getting a little better. Through the design discussions what I outlined and through the close collaboration with many of the strategic suppliers, and we are strategic for them, they emphasize that, we have a quite [ okayish-ly ] on day-to-day delivery. It's still hand to mouth in many areas, but they know exactly what's needed because we are not inflating our demand towards them, and that is very much appreciated by those suppliers. So with that close collaboration, we have been able to support our businesses to a good extent. That does not mean we don't have had issues, but that is now coming to, I would say, a better visibility, and we are expecting a relaxation in the late quarter 2 and an improvement in the quarter 4. It is still around engines, around drives, around electronics and PLCs, but it also comes down to cables, and in some areas, also through molded plastics.

And my second one is on, excuse me, working capital. So maybe if you can elaborate if you are using any finance -- supply chain financing or factoring, which may be helping your working capital situation. And also given we are at 5.1% of sales right now and you guide 8% to 10% in your guidance corridor, why not you are lowering it down to a level closer to 5%? What is keeping you at 8% to 10% range?

Okay. Yes, that's a valid question. We have to say that -- why net working capital came down was actually because our trade debtors decreased. We were successful there. At the same time, we were able to increase our trade creditors also with the help of purchasing where we prolonged payment terms. And then contract liabilities were also advanced, payments are included actually also went up considerably. The counter effect was that our inventory, as I mentioned earlier, went up by EUR 91 million. So the reason is not that we are using some financial instruments to reduce the net working capital, it was really coming out of the net working capital cost itself. We will be looking at the range again, but probably only after the first half of this year. For now, we're going to stay with the 8% to 10%, considering all the supply chain challenges that are out there, and let's see how work in progress is going to evolve. And so I'm not saying, we're going to go back from 5.1% to doubling to 10%, that's not my message. My message is simply here that the visibility currently is not in a way that we feel comfortable actually changing the range. However, we're going to do our utmost to keep net working capital flattish as we did in '21.

Our next question comes from the line of Sven Weier from UBS.

The first one is following up on the EUR 120 million cost increase potential that you flagged. I was just wondering how much have you already as a tailwind from price increases that you did last year? And how much of the procurement savings do you have in the back already? That's the first one.

Okay. When it comes to the last year, as I outlined, we had a net cost increase of EUR 28 million. And against, we had EUR 43 million savings, which is net-net, even after deducting some avoided cost discussions. So net-net, the price increases were minus 15%, so which was completely compensated. For this year, the EUR 120 million, as stated, that's the growth number. And in our pipeline of cost reduction ideas, we measure that in a GEA logic, we have EUR 48 million, which will most probably also come through. And what is now and the rest needs to be still fought against the price increases, which we also do. And potentially, I can hand over to Stefan on the [ compensation through ] price increases with the customer.

Sven, so we definitely are working on the price issues, and we are keeping a very close eye on that action. And I can tell you that we are very optimistic that we can pass on all the increases to our customers. That's also what we did, what we already started last year. We did, in some areas, even a not only a onetime increase of prices, sometimes also twice. And it's very clear that we're also having an environment where customers are accepting that prices need to go up. And when it comes to projects, we have normally back-to-back rotations from our sub-suppliers. So we are quite optimistic that despite the increasing prices we see on the supplier side, we will not be the one who is significantly suffering at the end.

Yes. I was just wondering because of the price increases you had last year, I assume there is already a full year effect that you have in 2022, right? I guess it only had a partial effect maybe in '21. I was more looking about this kind of trailing effect that you have from that. Is that significant? Or is that a smaller number?

Difficult to say, to be honest, because we don't have these numbers. But I mean, I would not be so -- how should I say, so questionable about that price increases. I have a good feeling that we are here working really on good measures.

Okay. The second one is a follow-up on SFT. Also with regard to the Q4 order intake, which was down 10% sequentially. I was just wondering, is that also the run rate to work from for this year? Or was that kind of seasonality? And also your guidance for SFT, you look for a significant sales increase, but only a slight margin improvement, I think. And I was sort of wondering about that.

Yes. I mean maybe let's start with the margins if you -- and Sven you know, we are very, very well now if you look at the margins at SFT, first of all, they are really great and outstanding order in the industry benchmarks. We increased the margins significantly during the last 2 years, and we are nevertheless optimistic that we can improve the margin further. And also when it comes to the order intake, we see a lot of opportunities also here in growth for the future, but you also know how it is with the quarterly reporting. And sometimes we also have larger projects also in SFT, and that also makes a difference sometimes, but there is nothing which worries us. I'm very bullish and believe that we can continue our success story in SFT as well.

And you mentioned that order intake is down. Did I understand that correctly? Because we think order intake...

This is Marcus. Sequentially. Yes, you mean Q3 to Q4. Okay, got this yes but you see, I mean, year-over-year, it's an improvement organically about 4.9%. So it's just -- then in the fourth quarter, we see that. That has nothing to do with basically that the business is going down.

Okay. Good. Understood. And the last question, if I may. You were obviously mostly bullish on the pipeline on orders for all the divisions. So I was just wondering, as usual, would you be ready to give a Q1 order guidance? Should we expect something between the usual EUR 1.2 billion, EUR 1.25 billion? Is that the right range?

No. No. I think -- yes. First of all, yes, you are using all that we are giving always in our calls the kind of guidance for the coming quarter in terms of order intake, and we see very good order intake so far in the first month. So we definitely expect a number, I would say, a bit more than [ 1.4 ]. And that I'll say it in percentage-wise, I mean, you know that last year, we grew by 14% in the year '21 compared to '20. And I think we will see a similar percentage growth also in the first quarter compared to the Q1 last year. And please bear in mind that you have to look, reported numbers are not the like-for-like numbers because last -- first quarter in last year, we still have included some of the debt investments. So GEA book, for instance, was partly at least included in all the other companies as well. But the message is, we will see a good Q1.

Your next question comes from the line of Uma Samlin from Bank of America.

I have a question in relation to your sales guidance. So if I look at your order backlog, in 2021, you had EUR 2.1 billion backlog from your EUR 4.7 billion revenue, and you're expecting around EUR 2.5 billion in 2022. And so if we actually expect a 5% growth on your revenue for 2022, that would imply, like, in fact, a 6% to 7% decline in the revenues, apart from the -- what's already expect to be invoiced. Is that in your expectation? Or should we think that the 5% revenue growth to be like sort of at the bottom range as a relatively conservative estimate?

Yes. Let's -- thanks for the question, Uma, and let's once again say, we are in very volatile and uncertain times. And this is what guides us also to give out this guidance. And of course, if you look at the backlog, this gives us good opportunities to convert into sales and also higher sales growth. However, like we said, we see all the restrictions in the supply chain. We do not really have this -- know what we get and when we get it. We have the Ukraine conflict and all that puts us in a situation where we cannot be as -- where we don't have such a clear visibility like we used to have in the years before COVID, let's say, in '17, '18, '19. The world was a more easier one to predict.

That's very helpful. I guess another one, just to follow up on the supply chain bottleneck questions was asked earlier. So how much would you say has the supply chain bottleneck affected your sales in the quarter? Do you see any easing of that pressure in Q1? Or in your assumption of the EUR 120 million, do you expect similar supply chain pressures as you have today?

Well, the EUR 120 million are somehow not completely related to the sales and delivery shortage. That's just the price increase. The material shortages are very much punctual in many areas, and sometimes, it's just a drive, which is missing or a PLC, which is missing. And therefore, the WiP in the factories are piling up to wait for that material to arrive, then we can ship it out. What we see that quarter 1 will be and have been tight, but we also make progress with the sales conversion. So we are confident that we can close that gap in the next month to come. Quarter 1 will be tight. Quarter 2 will be slightly better. And I hope and we see good prospects that in the quarter 3, the gap is then closing again, and we can really finalize a lot of those started orders and convert them into sales. So I hope that answers your question.

Your next question comes from the line of Sebastian Growe from BNP Paribas Exane.

The first one is also around the sales guidance and more in numeric way, if I may. You mentioned, Marcus, the EUR 0.4 billion higher order backlog that is ready for execution this year. At the same time, you are guiding the 5% plus organic growth, which is about EUR 250 million or so. So would it be fair to assume that you're currently penciling the Russian-Ukraine impact at around EUR 200 million negative? Or how should we think around that? Because you also obviously added that quarter 1 has so far played out quite well. And the second question is around the backlog quality and then the EBITDA bridge. So when I look at the chart of the EBITDA bridge, it appears that the pricing and savings measures, they're offsetting each other and offsetting the input cost inflation. So as difficult as it might be, but if we put Ukraine aside, what would be a realistic operating leverage assumption considering that, for instance, also the SFT share and the backlog is up year-on-year because currently, obviously, your guidance does not imply much of an margin expansion despite what should be growth in this year.

Yes. I mean with the question to the Ukraine, I mean as we said, it's a very, very uncertain time. And that is also the reason why it might look conservative, but as I said, it's very difficult to predict everything. And that's the reason why the guidance is like it is. Of course, if you look at the order backlog and if you look at the increase of order backlog compared to last year, it gives us additional opportunities, but we have to see how we can convert the order backlog into sales.

Regarding the order backlog quality, we do not see an order backlog deterioration there. So we are calculating all with our gross margin, which we have an order intake. And we saw actually last year also with the cost calculation Stefan mentioned, now we do this with project, an improvement in the gross margin of the order intake. So therefore, what I can say is that we are firmly looking at 13.5% EBITDA margin. All in all, with all the cost increases, there are so many moving parts, Sebastian, there. But we still think that the goal here reaching this year 13.5% is absolutely realistic, with the price increases on the supplier side, the price increases that we are doing with a different product and projects. That's the best answer I can give you because otherwise, it gets too complex when you look at our divisions, the functional cost and the [ COGs ], and what's going on there.

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

The first one I have is a follow-up on Russia exposure. You very helpfully gave us the exposure in terms of sales or backlog. Do you have a sense of how much of your cost base either directly or indirectly is exposed to Russia? Because we've heard from some companies that versus their sales number, their cost exposure was kind of outsized, especially around aluminum exposure or some other metals.

The majority of our suppliers for Russia are coming out of Russia, but that is minor. Everything what we are purchasing outside of Russia is not related to aluminum or steel, so we are not really exposed to those topics. Indirectly, we also check with our major suppliers. For example, we have in the Baltics, we have one major supplier, but also that major supplier is getting the steel from the European Union and not from Russia. So we are about to check also the suppliers of our suppliers. So far, we have not seen a significant exposure.

Okay. So I guess in the -- in the assumption you have made around the cost base and the inflation and so on, you didn't necessarily had to provision in terms of potentially you change your supply channels and things like that?

As we are not exposed, we didn't do that, yes.

Okay. Okay. My second question was more around capital allocation. You've had the buyback, which is more than underway, the increase in dividend. How should we think of M&A also going forward? You had spoken about that, I think, about 18 months ago, maybe some large M&A, but nothing has been announced. In the meantime, mostly disposal. And obviously, at the same time, it's uncertain times, but obviously, the valuation across the industrial sector all being put logically under pressure. So how do you think about that now in terms of having done lots of disposal, what's the next step in terms of the portfolio?

Yes. Thank you very much for that question, Lucie. I mean we always said, we are ready and we are prepared to do acquisitions. We also would be ready to do large acquisitions, but we also know that our Mission 26 will also work out without any acquisition. So we don't want to do any stupid things. We don't want to buy companies which are far too expensive, but we are watching out. We are talking to targets sometimes, and we are really, yes, looking at the market. But as I said, we are -- we don't feel ourselves under pressure to do something as long as we have not found the right target, and this is what I can say at this stage.

And just maybe my last question, which is a bit more short term, but around the cyclicality in Liquid & Powder, historically, that was a business that was quite cyclical with large projects, and then new capacity was being installed, and it was taking time between new ordering that the capacity would be absorbed by the customer. It seems that we are kind of moved away from that, at least over the past few years. Can you maybe help us understand whether you expect this cyclicality to kind of repeat or whether you see kind of other structural drivers, which effectively kind of have changed structurally the way this industry -- the industry you're serving work compared to what it was historically?

Yes. So when it is about our LPT business, we clearly say, we go rather for margin than for any strong growth, let's say, because in the project business, that's always possible to win large orders if you fight hard for the price, but this isn't what we are, what we want to do. However, we see also interesting growth opportunities, and this is coming mainly from the field of new food. This is where we also outlined during the Capital Markets Day that we see additional volume of EUR 400 million per year coming until the end of '26, yes. So this is a further growth opportunity for us, and therefore -- even if, of course, machine building and process equipment will always remain somehow a cyclical business, we see more upside for the next year than downside.

Your final question comes from the line of Lars Brorson from Barclays.

Can I clarify a couple of things, please? First of all, Stefan, on your comment on Q1 order intake as it stands today as an issue you see it. Just want to clarify, I think I heard you said above EUR 1.4 billion. I was a bit confused. I think you flagged some growth numbers from last year it was obviously down. But if you could just clarify that, which obviously would be a very nice sort of sequential growth. Where is that coming in the business? Is that more large order driven? And can you give me a little bit of color around where that might be coming divisionally or by segment?

Okay. So let's repeat. So what we expect is an order intake above EUR 1.4 billion. This is our expectation for the first quarter of order intake, but I don't want to elaborate now about the details of the order intake of a quarter we have not yet finished. So I hope you understand.

Understood. Can I ask secondly to pricing? I just -- again, we've obviously all sort of asked around the specifics of pricing. I'm still a little bit confused, I'm afraid. Can you help us maybe -- just to start off with, what was like-for-like pricing for the group in 2021, please?

No, this is -- I mean this is also very difficult. If you look at the nature of our business, I mean we have areas or we have businesses where we have price lists, where we are selling components, where we can increase price list and then we see exactly what kind of price -- additional prices we get. But also a big part of our business is project business or customer individual calculations, and this is, let's say, a very, very complex thing which makes it, I would say, impossible, let's say, to elaborate further here on that topic.

But what you have said, of course, is that you don't expect to offset the EUR 120 million exclusively in price. So if that includes your supply chain savings to offset all of that, make pricing, what, an EUR 18 million, EUR 19 million contribution. So call it, 150 to 200 basis points at the group level. Is that the right sort of pricing level to think about for the group as a whole this year?

I mean what is clear, the price increases we see and we get, we have to pass on to our customers. That's our clear target, and this is exactly what we are doing. So at the end, we don't want to be in the squeezing position. And that's how we work, that's how we act, and that's what we do.

Helpful. And can I finally just ask briefly to steel and steel-based components. That's really where I think the big issue might be for this and for next year. Maybe to Johannes, I mean can you more generally talk-- you've obviously been through quite a significant shift in production volume and are going through a shift to sort of Eastern Europe particularly Poland. We've seen a number of companies this morning talking about shutting down, at least temporarily production in Poland and other Eastern European countries. Can you update us as how much as you see it today of your broad-based Eastern European supply chain, you can see might be disrupted from the crisis. It's a difficult question, but I'm just curious as to how to think about the sensitivities, and how you might be able to mitigate that in the short to medium term?

As you may know, we are just about to build up a big factory in Poland from a very small start. So currently, we are not really exposed from that as there is not much what we are producing in Poland. The factory, which are built is on track and it's built, but it will not be operational before the third quarter of this year. And therefore, there is no immediate impact to our current output. The factories we have in Russia, and just to give you an indication, in total in those 2 major factories, we have 50 people. So we are not talking about major factories, it's small workshops to serve the local market, and therefore, we are not exposed neither to a large extent there. So I don't see a significant exposure for GEA in Eastern Europe as we speak.

You do have a question from the line of Max Yates from Crédit Suisse.

A quick one. So just my first question would be, do you see any risk of when you started to move up prices for what's in your backlog and the costs increasing? So I guess the question is, is there any mismatch in your backlog between when you started putting up prices and then the cost of components that mean we may see some sort of back-end loaded, I guess, margin expansion in 2022. So how should we think about that phasing of sort of margins through the year?

We don't see any significant risk here. So because everything we do, especially for the large projects, we have normally back-to-back contracts with our important sub-suppliers. All we have -- and all we have clauses in the contract that we also might be able to increase prices whenever something -- which is unexpected will lead us.

Okay. Helpful. And secondly, you mentioned heat pumps within sort of, within Refrigeration, I think. Could you give us an idea of what your exposure within the group is to heat pumps?

I mean it's not so significant. We just started with that business in the heat pump, but we can see very, very large growth rates. So it's a lower double-digit number on sales, which we have here. But it's strongly increasing, and we see a lot of potential here.

Okay. And just a final one. Sorry, Johannes, to sort of make -- to ask about this again, but I just wanted to make sure I understood the comments on energy costs. Did you talk about that you had assumed within the EUR 120 million that there was EUR 20 million inflation on energy costs and a further risk could be that, that increases another 10% because of Russia and Ukraine? Or was it EUR 20 million was the absolute energy cost? Yes, if you could just run through that, sorry, one more time.

I think there was a confusion on this. Basically, we have an exposure of EUR 120 million in price increases. Within that EUR 120 million, we see an up to EUR 15 million price increase in energy, which is amounting a little bit more than 10% to 15%. I think that is it. And here, we do not have yet included impacts from the Ukraine. So out of the EUR 110 million price headwind, we are seeing -- we're talking about maximum EUR 15 million from energy only. I hope that clarifies it.

Yes, which means if it's a EUR 15 million increase, and it's 10% to 15%, it means your absolute energy costs are somewhere in the region of EUR 100 million. Is that correct?

No, that's not what I said. I said from the EUR 120 million headwind we see in total from all categories, energy is contributing to EUR 10 million to EUR 15 million to it. So it's 10% to 15% out of the EUR 120 million cost increases. When you look it only as a percentage of the category energy, it's obviously much higher.

I would now like to hand the conference back to the speakers.

Yes. Thank you very much for today's conference call and for joining, and I will actually hand back to Stefan for some closing remarks, and then we finish today's call. So back to Stefan.

Thank you very much, Rebecca. Thank you all for participating in the call. Let me just summarize, what are from our point of view, the most important messages from today. First of all, I think you could understand, GEA will continue the journey, Mission 26, and we will achieve in '26 our margin beyond 15% and a growth rate to 4 -- between 4% and 6% a year. And also in '22, we will improve our performance. That's what we see, despite -- of course, we see a lot of challenges and uncertainties in the world, but we are very optimistic that we can deliver further improvement also in '22. We have a very strong order backlog. We have -- we see good order intake in the first quarter, and all in all, we are quite convinced that we can continue the great development, which we added during the last 3 years and that we can continue on that track. Thank you very much. And yes, stay all healthy, and let's hope that we soon have freedom again in this world and especially, also here in Europe. Thank you very much.

This concludes today's conference call. Thank you for participating. You may now disconnect.