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GEA releases preliminary figures warning of challenging trading

Manufacturer GEA has released preliminary figures for 2017, as well as an initial indication for 2018 that forecast a challenging year ahead.

The Dusseldorf-headquartered company said it expected that its order intake would be moderately above the prior-year level at €4.7 billion (against a previous year €4.67bn).

Revenue is up almost 2% at roughly €4.6bn (against a previous year figure of €4.5bn).

The company said there had been a sustained weakness of dairy processing, an important customer industry, as well as the strength of the Euro. GEA has already launched important strategic initiatives.

Operating EBITDA, in which the corresponding negative impact from currency effects amounts to about €5 million in the second half of the year, is projected to total approximately €565m (previous year €566m).

This amount includes additional expenses for bottling lines that were communicated in July 2017 of around €20m. The company does not anticipate any further financial burden to arise from those bottling lines in the current fiscal year. The business added that a good fourth quarter allowed GEA to compensate for a weak third quarter when looking at the year as a whole.

The company expected to reach approximately €1.30bn (previous year €1.2bn) in the fourth quarter, being most likely a new all-time-high in a single quarter.

The trends observed in the individual customer industries during the first three quarters persisted, with food, dairy farming and chemical performing extremely well, while results in the dairy processing and beverage sectors were disappointing. Moreover, fourth-quarter revenue will also presumably be at a solid level of around €1.3bn (previous year €1.293bn) despite substantial currency effects.

“Based on our current assessment we are able to close the 2017 fiscal year with encouraging fourth-quarter order intake levels despite the sustained weakness of the dairy processing customer industry. By contrast, the other customer industries experienced a roughly 5% organic growth for the full year.

“The Euro’s strength turned out to be a major impediment, in particular in the second half of the year. Nonetheless, we were able to accomplish moderate revenue growth in line with our forecast, although this growth is at the lower end of our expectations. Our operating EBITDA margin for the fourth quarter is also expected to be above the level of the previous year,” says Jürg Oleas, CEO of GEA Group Aktiengesellschaft.

According to initial estimates and based on exchange rates on 31 December 2017, GEA expects revenue to be on prior-year level plus a revenue contribution in the amount of approximately €190m from acquisitions made between the beginning of 2017 and today.

First estimates also based on exchange rates on 31 December 2017 suggest that the operating EBITDA will be between €590m and €640m including these acquisitions.

Aside from an adverse impact of currency effects, GEA expects a roughly €40m  increase in salary expenses in 2018. Moreover, IT infrastructure expenses are expected to rise by €10m. In this context, the shift from in-house investments to future-proof cloud services as part of the corporate digitalisation initiative will come into play. In addition, this year is not expected to see any further major divestments of real estate.

“For the time being, we must continue to assume that order intake in 2018 in the customer industries dairy processing and beverage will remain subdued, offsetting the good to very good development in our other customer industries. However, the areas enjoying strong growth include sectors that previously used to generate below-average margins within the group. Furthermore, the strength of the euro will likely result in currency-related competitive disadvantages in addition to adverse currency translation effects.

“In view of these factors, we anticipate that 2018 will also turn out to be a challenging fiscal year. As a consequence, it can be assumed that we will not meet analyst consensus expectations, according to for example Bloomberg or Reuters, for the company’s 2018 results of approximately €635m, which, in our opinion, do not yet take into account all current developments,” comments Jürg Oleas.

“Our optimised group structure already sees GEA well prepared. However, we must realise that the complete transformation process is taking longer than originally anticipated. Nonetheless, we stand firm in our belief that going forward the previously launched measures will have an increasingly positive impact, in particular in the fields of purchasing and production. In addition, we will systematically tackle further strategic initiatives, notably in terms of revenue growth, service, portfolio, as well as additional optimisation measures. Detailed information on these activities will be provided at our Capital Markets Day in March,” adds Jürg Oleas.

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