Outlook and Objectives
Economy
The mechanical engineering sector clearly recovered in fiscal year 2010 following the slump in 2009. The German Engineering Federation (VDMA) describes this development as a textbook V-shaped recovery. The main driver was the export business, which was buoyed up in particular by the ongoing boom in China and other emerging markets. This means that, to date, the global economic recovery was not fuelled by growth in North America, which – like other traditional engineering sales markets – experienced only a moderate recovery. Consequently, global trade flows have shifted. This underlines the need for further internationalization on the part of German businesses if they are to cater to the needs of the emerging markets. The German government expects the recovery to continue, albeit at a more muted pace, and is forecasting real GDP growth of 2.3 percent in 2011. In line with this, the German economy will grow significantly faster than the eurozone average. For 2012, the government is forecasting growth of 1.8 percent.
According to a projection by the European Commission, which was published on November 30, 2010, growth in the European Union in 2010 is set to exceed previous forecasts. The Commission is expecting growth in the 27 EUR member states in 2011 to amount to 1.8 percent. In 2012, this figure is set to rise to 2.0 percent. In accordance with the estimates by the International Monetary Fund (IMF), global GDP should increase by 4.4 percent in the current year and by 4.5 percent in 2012. Germany is expected to be one of the top performers among the industrialized nations. Overall, economic development in the emerging markets will continue to outstrip that in the rich nations of the world. However, the IMF considers far-reaching and rapid action to overcome the government debt problems and imbalances in the euro zone and, at a more general level, fixing and reforming the financial systems in the industrialized nations, as the key precondition for continued strong economic recovery. This must be flanked by measures designed to prevent the major emerging market economies from overheating and to help rebalance their current account positions.
As these growth forecasts suggest, the global economic recovery seems to be continuing in 2011. We expect the pace of growth to remain more or less unchanged in almost all key economies. The prolongation in the United States towards the end of last year of the tax breaks designed to further stimulate economic recovery and reduce unemployment is raising hopes of a sustained recovery there. China, the world’s second-largest economy, remains on a growth path. Nevertheless, although the economic recovery was more pronounced than had been expected at the start of 2010, it must be said that setbacks may still occur, as the crisis in public-sector finances in a number of EU countries has shown.
Business outlook
Demand for food and energy is continuing to grow faster than average in the emerging markets in particular as the world’s population grows and living standards rise. Our process engineering processes and machinery means we are excellently positioned to take advantage of the resulting market opportunities.
Our planning for the current fiscal year is based on the following assumptions:
- a further increase in investment in the food industry based on continued growth in demand for processed foods,
- an upturn in the energy market, especially in the oil and gas business, due to the global recovery and the assumption that energy prices will continue to rise in the medium term,
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growing interest in energy-efficient processes, which will boost demand for GEA’s engineering solutions and products,
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price increases for key commodities and materials, and
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low interest rates designed to stabilize the highly indebted economies in the euro zone on the one hand and to support the economic recovery in North America on the other.
Provided that the trends described above materialize, demand for GEA Group’s products and services should continue to pick up compared with 2010. We therefore assume that we shall be able to lift order intake and revenue by at least 5 percent in 2011. To this must be added the volume of business attributable to the acquisitions of CFS, Bock, and Mashimpeks, which would contribute slightly less than EUR 500 million in a notional full year. Depending on when initial consolidation takes place, these companies will contribute to GEA’s sales figures for roughly 6 to 9 months in 2011.
All segments are expected to contribute to the organic growth of our business volume in 2011. The breakdown of sales by end market and customer industry is unlikely to change dramatically. From a regional perspective, the share accounted for by Western Europe will decline, whereas our business with Asia will continue to grow in importance. Eastern Europe, the Middle East, and Latin America should also see slightly above-average growth. With regard to earnings, we expect that the EBIT margin will climb to approximately 9 percent. No further significant one-time expenses are expected for 2011. This also applies to the discontinued operations.
Revenue will continue to increase in fiscal year 2012 as against 2011. In 2012, when all restructuring measures will have taken full effect, we are expecting additional increases in both earnings and the EBIT margin. It is assumed that all segments will contribute to this positive development. Assuming that the overall global economy continues to stabilize, we are expecting to see continued growth rates in excess of global GDP growth for our core sales markets in the coming years. Against this backdrop we remain of the opinion that, due to the measures we have initiated to reduce complexity, we can achieve a sustainable EBIT margin of 12 percent across economic cycles.
GEA will consolidate the CFS Group once approval has been obtained from the antitrust authorities. The order intake, revenue, and earnings for the new segment will be included in the consolidated financial statements as from this point. We are continuing our strategy of acquiring companies that provide GEA with an entry into new markets or that selectively expand our range of offerings in existing markets. This will enable us to provide our customers with a single-source solution for an ever-broader range of processes.
The group’s net liquidity amounted to EUR 105 million as of December 31, 2010. Unused cash credit lines totaled EUR 1,122 million. We are forecasting cash outflows of EUR 110 million in 2011 from the remaining provisions for discontinued operations. Overall, in addition to expected payments relating to discontinued operations and our ongoing restructuring activities, we expect to be able to fund significant investments in the Company’s future from operating business and available credit lines.
The Executive Board and Supervisory Board will propose a dividend of EUR 0.40 per share for 2010 to the Annual General Meeting. Our ongoing goal of distributing one-third of the group’s earnings as a dividend remains unchanged. For the past fiscal year, the figure is in fact significantly in excess of this.
Bochum, March 1, 2011
Jürg Oleas Dr. Helmut Schmale Niels Graugaard
Chairman of the Executive Board Finance Member of the Executive Board