GEA Group Aktiengesellschaft ($G1A)

Good day, and thank you for standing by. Welcome to the GEA Group AG Pre-Close Call Q1 2026. [Operator Instructions] Please be advised today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Oliver Luckenbach. Please go ahead.

Yes. Thank you very much, operator, and good afternoon, ladies and gentlemen, and welcome to our Q1 2026 pre-close call. As said, my name is Oliver Luckenbach, I'm the Head of the GEA IR team. and I'm joined by my deputy, Rebecca Weigl and my colleague [indiscernible]. Please keep in mind that we operate under our new organizational structure from 1st of January 2026, and will report our Q1 2026 in our new divisional setup. That's pure flow processing, nutrition plant engineering, pharma and food applicate and farm technologies. To help you model this new divisional setup, we have published an [indiscernible] beginning of March with 8 quarters of pro forma figures for the fiscal year 2024 and 2025, which you can find in the download section of our home page. If you can't find it, please do let us know, and we are happy to send it to you. As today's call will contain forward-looking statements. It will be conducted according to our disclaimer. I will not read the disclaimer, but please be aware of the cautionary language that is included in our safe harbor statement, which is part of our presentation you can find on our GEA internet page. We will now address topics, which we also discussed during recent conferences and roadshows. And afterwards, you will have time to ask questions. Topic number one, guidance. We confirm our group guidance for fiscal year 2026, which we released with our full year 2025 results in March. We expect organic sales growth of between 5% and 7%. EBITDA margin before restructuring expenses between 16.6% and 17.2% and return on capital employed between 34% and 38%, so it's unchanged. Topic number two, customer industries. On the food side, the business is performing good. Beverages look softer compared to the past. Dairy processing here, the pipeline continues to show activity across both projects and components to it an ongoing good market development. Dairy farming, the general market sentiment is positive across almost all regions with the exception of China. Pharma. Here, we see a promising pipeline and our new food. In 2025, we saw first and of with order intake almost doubling, and we are actually optimistic that this positive development conduce so that we can make further progress in 2026. Topic #3, order intake. 2026 will be again a good year for GEA in terms of order intake. We have a lot of interesting, also larger orders in the pipeline. But as you know, it is difficult to predict when they will be signed and [indiscernible] 2025 was the record quarter with an order intake of EUR 1.8 billion, including 9 large orders with a total volume of EUR 440 million. This is not the new normal, especially as large orders [indiscernible]. However, given the healthy development in [indiscernible] Q1 2026 will be more in line with the order intake in 2025. This year, to remind you in Q1 2025, our order intake was slightly above EUR 1.4 billion. Translational FX effect is expected to be negative in the first quarter of 2026. In the fourth quarter of 2025. It was minus 3.3%. And it's likely to be of similar magnitude also in the first quarter in 2026. Coming to topic #5, [indiscernible] Topic #4, sales. As already stated during our full year conference call, we expect organic sales growth in Q1 2026 to be below the guided range of 5% to 7% for the full year 2026 with an acceleration during the year, given the fact that we have received many large orders in the second half of 2025, particularly in the fourth quarter. Therefore, we expect an organic sales growth better similar to last year, where we started the year with an organic sales growth below the original range and accelerated organic sales growth in the following quarters. Also here, the translational FX effect is expected to be negative in the first quarter of 2026 in the fourth quarter of last year, it was also minus 3.3% in -- and also here, we expect it likely to be of a similar rate in the fourth quarter of 2026. Now topic #5, EBITDA margin before restructuring expenses. Our EBITDA margin guidance of 16.6% to 17.2% for the full year 2026, clearly indicates that we want to make further progress with regards to our profitability in fiscal year 2026. And therefore, you can expect that we already want to show some progress here in the first quarter of 2026 over the same period of last year. And just to remind you, our EBITDA margin before restructuring expenses was 15.8% in Q1 2025. And with that, that's it from my side, and I will now pass it over to Rebecca.

Thank you, Oliver. Hello, everybody. Just some housekeeping information from my side. First topic is topic #6, cash flow. Just as a reminder, for CapEx, we stated that we expect CapEx of around EUR 240 million for the full year 2026 and in terms of net working capital to sales ratio, our highest corridor of 7% to 9% of sales is still live. However, keep in mind that due to seasonality, there has always been a sequential uptick in net working capital in the first quarter from the level in the fourth quarter, we don't expect that it will be different in 2026. So therefore, the net working capital ratio Q1 will most slightly be higher than the record low of 3.2% reported for the fourth quarter in 2025. Now coming to topic #7, restructuring expenses. As promised and stated several times, 2026 will be the last year with an adjustment for restructuring expenses. From January 2027 onwards, we will no longer adjust our EBITDA for restructuring expense. As a reminder, in 2025, we had EUR 48 million of restructuring expenses on EBITDA. Topic #8, additional financial information, depreciation, amortization, we gave an indication that for fiscal year 2026, we expect around [indiscernible] for the financial results, we expect minus EUR 30 million. The tax rate is expected to be between 28% and 30% [indiscernible] and the R&D ratio is expected around 3% of sales. That's it from our side. We are now happy to answer your questions. and Sarah may ask you to open the Q&A.

[Operator Instructions] The first question today is from the line of Sven Weier from UBS.

I have a few follow-up questions, if I may. The first 1 is just, Oliver, on your order intake commentary because you said it's going to be around on the level of the previous year. Is that already taking into account the currency effect?

Yes, exactly. So last year it was a little bit more than EUR 1.4 billion. And what we are guiding for is the reported number, which is likely to be a similar level yes.

Okay. So organically, you are kind of up mid-single digit on the back of that low to mid-single digits here. The second question I had was just, I mean, regarding your margin commentary, mean if we assume that -- I mean, as you said in Q4 already the year is going to be more back-end loaded in terms of organic growth, especially on the big projects. I mean, shouldn't Q1 then have a disproportionately positive effect from mix because you obviously probably have service growth higher than OE. And even within OE, you probably have the higher-margin stuff coming first before the big ticket projects come later this year. Is that fair? Or am I missing something here?

Yes, it's hard to comment on this at this point in time, as you know, we haven't seen the full figures so far. So it then very much depends on the constitution also of sales. But what we can say is what we have seen so far is that we can make the comment I just made that we expect here an improvement in the first quarter. this year over the first quarter of last year, by how much that we need to see that at the end of the day.

Last question I had was just was wondering what was being said recently by management on M&A. We all saw that obviously, the [indiscernible] deal has been the PE and not you. And so that probably means that bigger M&A question mark is out of the pipeline? And if that's the case, how should we think about renewal of buyback?

Yes. So M&A remains a topic for us that is clear. But I think what you have just mentioned is also clearly telling a story, so to speak, that we are not prepared to overpay for any kind of target. So we do our homework. And if it's feasible, if it's manage it makes sense, then we will do it. But as you also say in [indiscernible] vet do not expect any stupid -- and yes, if we are not finding anything, I would say, during the course of this year, that for sure. So the topic of share buyback comes back. There's nothing we have hence. It's actually something we have done when we bought back more than -- around about EUR 700 million in 2023, and a little bit in 2025. So that is also something that could come back yes.

Next question, this is from Klas Bergelind, Citi.

So coming back to order intake, obviously, a very strong quarter for large orders in the fourth quarter. And during the call, and now you're also saying that you have a lot of interesting large orders in the pipeline. I mean still in periods of increased macro uncertainty that we have now because of the Middle East situation we typically see more hesitations, right, around large order decisions. Is that something that you're seeing already in your discussions with your customers? Or are they more hesitant? Or is it too early to tell?

Thanks for the question, Klas. And it's that disaster what's going on there. I think that is clear. But so far, we really haven't seen anything with regards to the hesitation. We're actually even discussing a large order in the region, and it's nothing that they can ask for a rig or anything like that. So it's continuing. But on the other side, you also know that these projects, as you have seen with the [indiscernible] sometimes it can say [indiscernible] up to 2 years. So they're very hard to predict, but so far low despite the fact that there's so much uncertainty, we cannot see it in discussions with customers, at least not so far. And yes, that is the comment we can make as of today.

And then maybe to ask this in a different question. Obviously, you showed this slide that your direct Middle East exposure is tiny, but I'm thinking the indirect exposure, looking at your customers. I mean -- for example, Farm Tech, you had amazing orders the last couple of quarters, but feed costs are now likely going to go up and perhaps energy costs, diesel and so forth, the farmers might impact the investment decisions. When you look at the indirect exposure, is there anything sort of makes you worried in terms of that things could slow at the customer brand because of what we see from a supply chain point of view, the indirect effects coming out from the conflict.

I think that is the third question. And I think nobody has [indiscernible] crystal ball here. But what we can say that we don't have any production side here. We don't have any major suppliers sitting in the region. And also in terms of our own say procurement strategy, we have a very high share of local for local procurement. So actually, more than 80% of our [indiscernible] always done locally. So that means we are not really dependent on -- or heavily depends on global supply chain or on logistic rules. So therefore, I mean, we haven't heard any anything in that direction and feel actually quite relaxed here. I mean -- in terms of what you're saying, what's the implication on customers going forward. And we would say probably mean if energy prices are further rising, I mean, it will probably lead to further pressure on the customer side to think about how to produce more energy efficient going into the future. So I think that could actually be an opportunity for our equipment on that side. But I think it's really too early to tell.

Yes, absolutely. I were thinking about sort of higher fertilizer prices, feed crops, et cetera, becoming an issue. But I guess it's too early to tell. My final one was also sort of linked to Sven's questions on the sales guidance. I mean, it's quite clear that you will have new machine sales accelerating through the year. But shouldn't we have that sort of margin expansion being more geared to the first half, and then we should have less margin expansion in the second half? Or are you still of the view that you will have better operating leverage on new machine sales offsetting that potential mix issue that we might have in the second half.

Yes. There's always a debate and discussion. We are having also our road shows and conferences. But yes, if you think about it, and that is for sure, on the one side, we do still see good demand development of our service business that as number one. And on the other side, if you think about capacity utilization, the more larger orders, the better our capacities are utilized and this would also have a positive impact. For sure, and that's also what we have clearly communicated that we cannot most likely not deliver another year of 100 or 110 basis points of margin improvement because we also want to grow our machine business stronger because then this will be the way for future service business we can generate in the years to come. So overall, we feel very comfortable with the guidance I've given you for the full year and quarter by quarter, we now just need to see how Q1 was and then we can maybe continue our debate afterwards.

We'll now take the next question. This is from Sebastian kuenne from RBC.

It's relating to the -- your FTE business and connected is, of course, dairy processing. What we see in Europe is that the prices for raw milk coming down quite sharply now, and there was some overproduction in the last couple of months. Do you see a risk that the [indiscernible] feed ratio has come down sharply. It rises to Klaus question here, [indiscernible] feed ratios coming down under production and then more cautious investment by the dairy processors further down the line? Or do you think this is just a distortion that we see in Europe might relate to Middle East and crisis?

Well, I think in terms of, let's say, first dairy farming when we talk about the milk-feed price ratio, I mean what we are hearing or from our colleagues, and that what Oliver said to you earlier in terms of the views on customer industry. that actually what we are hearing from there that the general market sentiment is still positive across most of the regions with the exception of China. So from their perspective, it feels like what you're referring to is that this is not yet having an influence. in terms of dairy processing, you probably could argue that actually lower raw milk prices is an input factor for them. So it should be rather attractive than for investment. But honestly, if the loan or [indiscernible] you name them, they don't plan their CapEx according to the current [indiscernible] prices. the plan according to CapEx expansions in general, we vendition capacities, whether it's innovation, whether it's actually investments to more energy-efficient equipment, et cetera. So I would say the current [indiscernible] price for dairy processors for their CapEx decision is not really relevant parameters.

Then one brief question on the U.S. market. I mean the oil price is going up, that might reduce the relative cost for biofuels, ethanol and biodiesel. Do you already see like more interest from this type of customer group that's basically finding alternatives to fossil fuels? Or would you say this currently too early?

Not so far interesting thought. What you are saying I understand it. But to be honest, at least we haven't heard anything so far internally, but could be maybe trigger a positive going forward.

Next question is from Max Yates, Morgan Stanley.

Just my first question is, normally on these calls, you've tended to actually give the large order announcements that you've had in the quarter, just so we can sort of calibrate them is the fact that you haven't sort of given any does that mean you haven't had large orders this quarter? Or have some? And if so, kind of how many and how much?

Yes. So to be honest, it's not a very early in April and that we are shortly after the Easter break. Many people are still in the Easter break. So I wouldn't expect [indiscernible] large orders, but the exact number is hard to have to predict how we also protect the our internal files, but the overall statement that order intake should be around about the level of Q1 of last year, that is still valid. But yes, it shouldn't be a large orders, yes.

Okay. And could I just check sort of -- I mean during this call, obviously, where do you have firm visibility up to? So just because companies normally sort of when they communicate on these calls sort of have you seen February numbers and you don't know what March numbers look like? Have you seen 2 months, 2 weeks of March? I'm just trying to get a sort of calibration of the comments that you're making. Where are they really up to in terms of the quarter?

No, for sure. We have no detailed numbers now in front of us. We have a very granular monthly reporting, and then we get some indications from our colleagues and then we put together our picture. But as you know, we are in a relatively stable markets and so on and so forth, We have put visibility and so far with this information we had at this point in time. I think we gave all information that was possible. At this point in time, but for sure, there's nothing final at this early stage, but we have a very good footing for our comments we are making.

And just one final one, and it was a bit of a clarification on what you said on revenues. Obviously, I heard the sort of comment that the Q1 revenue growth was below the range. Did -- when you talked about and referred to it about last year, were you just saying that it would follow a similar shape to last year, i.e., the revenue growth would accelerate through the year or where you actually saying Q1 revenue growth will be similar to the Q1 revenue growth of last...

No, very good question. Thanks for clarifying. That was not our intention. It was just, let's say, the pattern, so to speak. So last year, it was 9% in Q1, but then accelerated during the course of the year and from today's point of view. Again, it's very early in the year. also Q1 was 100% finalized. As you know, we would expect a similar pattern, but not trying to tell you that it should be 0.9% in Q1 of this year.

Okay. And just sorry, very final one. Just on your large because obviously, what -- I mean, what is about to happen is we will get the spike in inflation and some form of inflation shock. When it comes to sort of hedging your large contracts, particularly these sort of longer-dated ones like the one that you've signed in Algeria. Can you give us a reminder of what you're able to hedge and what are the kind of unhedged costs where it's more difficult to pass these through to customers? And I guess I'm thinking about some of the larger buckets, electricity price was some of the buckets of cost electricity prices, freight, raw materials and wage inflation.

I mean in terms of the large all decisions, the way it works is when there -- then when we bid for an order, we, of course, get all the quotes from the suppliers, et cetera, which where we place our cost calculation on -- at the moment we receive such an order. So when we get it awarded, we basically turn around to our suppliers and lock these prices in. So that's the back-to-back contract that you want to call it that way. On top of that, we have many contract price escalation clauses. So therefore, for these long-term contracts, as you can also see that with the high inflationary environment where we have been in, we have been quite successful actually in dealing with that due to these price escalation clauses in respect to that contract.

Okay. So things like electricity prices and freight, you would be able to pass on in those escalation clauses?

I'm not an expert. What is exactly all included in there, honestly. I mean, if I think about, for example, when we also have a look at that in terms of tariffs, that's all paid by the customer. So I think we actually are, I would assume a pretty good position here in passing these things on to our customers, as we have said in the past.

I think if I remember at that time when we had to face a very high inflation, I think about 90% of the vast majority of the freight cost was also paid by our customers, yes.

Next question is from Adrian Pehl from ODDO BHF.

Actually, one question on the supply chain. I mean, obviously, since the war, unfortunately, has taken us a bit longer, what about the supply chain in particular? I mean, obviously, I'm not too concerned about any metals you might be procuring. On the other hand, obviously, there might be some disruptions on the semiconductor chain, which might mean some influence on whatever kind of controllers or whatever you need. Do you see something there? And how is the general shape and how states of your supply chain. Do you see any issues on that? And then just a second quick one left from my side is actually Rebecca, you were saying something on [ D&A ] and financial results, we just didn't get it entirely. Was that something you just repeated the full year guidance? Or did you say something on Q1 with those 2 elements?

Yes. So regarding the additional financial information, that's exactly just a repetition of what we have in our material since March, the additional guidance right, nothing new, just really housekeeping to make sure that everybody is aware of these numbers. And regarding your first question on supply chain, maybe I cannot start I mean what we are hearing internally we are hearing that no issues on that side. That does not mean that something can come up. But at the moment in terms of how we are procuring as I said earlier, we have more than 80% local for local procurement. So therefore, we actually are not seeing any impact yet. And also in terms of the shift to semiconductors, I haven't heard anything here in turn there is an issue coming up.

No, so far so good, so to speak, but it's a very volatile environment. We also follow this closely, as we always said, during this kind of more volatile times. We have dedicated teams following this. And as Rebecca said, there's no new information or anything that makes us any headache today. But again, it's all time and time.

All right. Can you remind us how it was with the supply chain crisis some years ago? Did you see some impact -- have you been able to kind of, I don't know, redesign some components quickly enough to be able to deliver? Or how is that?

So in the past, it was mainly related to some electronical parts, which was a problem. There was also something [indiscernible] the market. But then it was, let's say, the more sophisticated electronic components that have been impacted so far. So nothing to be worried about so far with regards to GEA. And at that time, it took us a little bit longer than to ship, so to speak, all our products. But again, nothing hurt so far. So it doesn't seem to me that we are any anything like close to such a situation right now.

Take the next question. This is from [indiscernible] from Jefferies.

Just a quick clarification. I'm not sure I got this right. Sorry, my line was a bit bad. Your commentary on order intake being at the same level as last year. Is that ex large orders or this headline x lot orders or including them?

No, it's actually all in what I said around the level of last year, then there was a specific question it was asking for the -- is it a reported number, organic number, it's a reported number. So that is our best guess as of today.

Yes, understood. Yes. Secondly, maybe along the lines of the questions that were asked before. I remember when we started to see now lending rates going up a bit, and I think your business tends to be a little bit sensitive to that. Maybe you could just give a comment there on how the percentage of your customers that use sort of lending to finance their equipment? And how do you see the current situation with lending rates sort of creep up a little bit?

I think -- I mean when we have seen these spikes in interest rates in the past wherein this period of rising interest rates, -- the customers were probably were most impacted from that were the dairy timing customer because they are -- I mean, for them may need to get access to financing to buy their equipment. -- that at least that the customer who I have in mind was a bit more sensitive to interest rates and to higher interest rates from that way. I think with the other ones, I guess it's been more a mix of the general environment, whether we see postponement or anything like that. And as Oliver just said, I mean, so far, we haven't heard anything at this direction.

We'll take the next question. This is from Sven Weier from UBS.

Yes. Sorry, guys. I just feel I wanted to follow up on 2 points here. And the first 1 being on the importance of milk prices and the mill feed price ratio because that's an evergreen with you guys, mean shouldn't we just dump that out of the window because at the end of the day, the orders are driven by subsidies and food security aspirations of certain countries, and in fact, subsidies really account for the majority of the CapEx covered. I mean, should you not ask us to forget about the milk price entirely?

[indiscernible] because so often, we are getting the question, and we also did our internal analysis and we couldn't really find any relation between the ratio and our order intake of sales and on [indiscernible] seems to be there, sometimes not. There are many other impacting factors. And so far, we are really happy with the development we are seeing for sure here and there, especially with regards to small holder farmers there might see impact that need to come to a decision that we want to go for holidays here or by a new working a robot or not. This might be here and there. But again, there is no clear relationship we can see here, yes.

And I would probably argue the harder the times for the farmers, the subsidies will probably only go up rather than down.

I mean absolutely, absolutely right. I mean in Europe, there's probably not a problem we can provide without any subsidies, yes.

And the other question, just to follow up on the question regarding energy costs and freight costs. I mean, on the electricity side, I remember you guys saying in the covered inflationary times that I think already then, it was a relatively small item of your P&L, and I think you've also rolled out solar power quite heavily in some of your factories. I mean is that still fair that this is actually a relatively small cost item in the P&L?

Yes I mean in general, energy really has a very low cost item. I think we actually had a...

[indiscernible] last year. with the majority for electricity and bad gas. And so that is nothing that is really hurting us. So even if it will double -- we're talking about EUR 20 million, EUR 25 million, which would be around about 2% of total EBITDA. And again, we also increasing prices. So that's not a huge issue for us.

SP1 Yes. And actually, to my knowledge, the majority of our contracts for this year actually takes for 2026. But as I said, any help [indiscernible].

And the logistics cost isn't so high because, as you said, you are 80% local for local at the end of the day.

Yes. Sure.

And there are no further questions at this time. So I will now hand back to the speakers for any closing comments.

Yes. Thank you again. And yes, the analysts and investors. Thanks again for participating in today's pre-close call. With the end of this call, we start our prior period and are already very much looking forward to talking to you again on the end of May, the day of the release of our Q1 2026 numbers. Before the [indiscernible], however, we will have our AGM on the 29th of April, And with that, all the best from the entire IR team, stay healthy and talk to you again in May. Bye-bye.

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