GEA Group AG

XETRA:G1A

Earnings Call Analysis

Significant EBITDA Margin Growth and Raised Guidance for 2024

In the second quarter of 2024, GEA Group AG achieved organic sales growth of 1.6%, driven by service expansion, despite a 3.5% year-over-year decline in order intake. The EBITDA margin increased by 89 basis points to 15.2%, leading to a 4.7% rise in EBITDA. Due to strong performance, the company raised its full-year EBITDA margin guidance to 14.9%-15.2% and ROCE to 32%-35%. GEA also earned recognition as one of the world's most sustainable companies. The company's free cash flow improved, standing at EUR 83 million for the quarter, and substantial contributions to EBITDA were seen across most divisions.

Steady Growth and Financial Performance

In the second quarter of 2024, the company demonstrated consistent financial performance. Despite a 3.5% year-over-year organic decline in order intake, sales rose organically by 1.6%, largely boosted by a 12.1% increase in organic service sales. EBITDA grew by 4.7% year-over-year, reaching EUR 201 million, and the EBITDA margin climbed to 15.2%, up from 14.3% the previous year【4:0†source】.

Improved Profit Margins and Financial Guidance

The company raised its full-year EBITDA margin guidance to a range of 14.9% to 15.2%, up from the prior 14.5% to 14.8%. Similarly, the return on capital employed (ROCE) guidance was increased to 32%-35%, previously set at 29%-34%. This upward revision indicates that the company might hit its ambitious Mission 2026 targets two years ahead of schedule【4:5†source】.

Sustainability Achievements

The company earned a rank of 33 among the world's most sustainable companies in 2024, and third place within Germany. This recognition underscores its commitment to sustainability alongside achieving financial targets【4:5†source】.

Credit Rating Upgrades

Both Fitch and Moody's improved the company's credit ratings. Fitch affirmed a BBB rating but upgraded the outlook from stable to positive. Moody's raised the long-term rating from Baa2 to Baa1 and shifted the outlook from positive to stable【4:5†source】【4:14†source】.

Division Performance

The divisions showed mixed results. Separation & Flow Technologies experienced an 11% organic increase in order intake driven by food and pharma industries, with a significant 17.4% growth in organic service sales. Conversely, Liquid & Powder Technologies faced a 9.1% organic decline in order intake【4:2†source】【4:7†source】.

Strong Free Cash Flow

The second quarter saw a free cash flow of EUR 83 million, aiding a net cash flow of EUR 64 million after accounting for lease payments and interest. The first half of the year culminated in a positive free cash flow of EUR 26 million, marking a significant improvement from the previous years' negative figures【4:11†source】.

Challenging Market Conditions

The Farm Technologies division faced investment restraints due to high interest rates, lack of subsidies, and declining milk prices in regions like China. Yet, the division maintained its service business growth, although new machine sales were down 7.8% organically【4:6†source】.

Capital Allocation and Share Buyback

The company has executed EUR 100 million, or 45%, of its EUR 400 million share buyback program initiated in June 2024. This reflects a strategic approach to capital allocation while maintaining financial stability【4:14†source】.

Outlook and Future Plans

Guidance for organic sales growth remains unchanged at 2% to 4% for the full year 2024. The upcoming Capital Markets Day in October will reveal strategic plans and targets extending to 2030. This event is expected to highlight additional potentials and provide further insights into the company’s future direction【4:10†source】.

Earnings Call Transcript 2024-Q2

[Operator]

Good day, and thank you for standing by. Welcome to the GEA Group AG Second Quarter 2020 Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded.

I would now like to hand the conference over to your first speaker today, Oliver Luckenbach.

[Oliver Luckenbach, executive]

Yes. Thank you very much, and good afternoon, ladies and gentlemen, and thank you for joining us today for our second quarter 2024 earnings conference call. With me on the call are Stefan Klebert, our CEO; and Bernd Brinker, our CFO. Stefan will begin today's call with the highlights of the second quarter, and Bernd will then cover the business and financial review before Stefan takes over again for the outlook 2024. Afterwards, we open up the call for the Q&A session. Please be aware of the cautionary language that is included in our safe harbor statement as in the material that we have distributed today.

And with that, I hand over to Stefan.

[Stefan Klebert, executive]

Thank you, Oliver, and good afternoon, everybody. It's my pleasure to welcome you to our conference call today. In the second quarter of 2024, GEA has once again delivered organic sales growth and a significant EBITDA margin expense. Order intake declined year-over-year by 3.5% in organic terms, but has been above the trough levels seen in Q3 and Q4 '23 of EUR 1.25 billion and EUR 1.26 billion.

Sales rose organically by 1.6% benefiting from a further expansion of our service business. EBITDA before restructuring expenses increased by 4.7% year-over-year to EUR 201 million. The corresponding EBITDA margin rose significantly by 89 basis points from 14.3% in Q2 '23 to 15.2% in Q2 '24. Return on capital employed decreased on a high level to 32.3%. Since we have continued with a very positive operating performance in the second quarter of '24, we have decided to raise our EBITDA margin and ROCE guidance for the full year '24 on 10th of July. We are now expecting the EBITDA margin for the full year '24 to be in the range of 14.9% to 15.2%, considerably up from the prior guidance of 14.5% to 14.8%. The new guidance range for return on capital employed is 32% to 35%, also above the prior range of 29% to 34%. The new guidance implies that we might already achieve our ambitious financial targets under our Mission 26, 2 years earlier than planned. This would be a fantastic achievement.

And we have another reason to be proud of ourselves. The U.S. news magazine, TIME and Statista, have determined the world's most sustainable companies of 2024. Over 5,000 companies have been evaluated globally to identify the top 500 companies. And GEA has not only made it into the top 500, but achieved a rank 33. And if you look at Germany only, we are even #3, though we are not only running ahead in terms of our financial targets under Mission 26, but we also continue to remain a front runner with regards to sustainability.

The positive development, and here, I'm talking about our financial and business profile has been recognized by 2 major international credit rating agencies, which are already assessing our creditworthiness for many years, Fitch and Moody's. Both made positive changes to the assessment of GEA in the second quarter. Fitch has confirmed the BBB rating, but has raised the outlook from stable to positive, while Moody's has upgraded the long-term rating from Baa2 to Baa1 and changed the outlook from positive to stable.

Let me now provide you with a quick update on our share buyback program, which represents an important element in our capital allocation strategy. As you know, we have completed the first tranche of our share buyback program in May and have started with the second and final tranche at the beginning of June. This tranche will run until early '25. As of end of June '24, we have executed EUR 100 million, or 45% out of the EUR 400 million program, and I can already share with you the latest numbers as of yesterday's closing. We have bought back 5.9 million shares since the beginning of the program until yesterday's closing, which represents 3.4% of outstanding shares.

With that, I hand over to Bernd.

[Bernd Brinker, executive]

Thank you, Stefan. Good afternoon, ladies and gentlemen. Let's start with order intake. As we've left the trough levels of Q3 and Q4 2023 behind us, but continued to face postponements of larger orders and CapEx restraints from our customers in the second quarter. As a result, the order intake declined by 6.7% year-over-year to EUR 1.29 billion. Sales was up by 1.6% year-over-year on an organic basis. This was driven by strong organic service sales growth, while organic new machine sales declined. EBITDA before restructuring margin increased considerably by 89 basis points to 15.2% because of a higher gross margin. ROCE declined slightly from a very high level of 33.8% to 32.3% since the improvement in EBIT before restructuring expenses was overcompensated by higher capital employed, resulting from an increase in noncurrent assets and net working capital. Net liquidity decreased year-over-year only by EUR 33 million to EUR 32 million despite the cash outflow of EUR 341 million for the dividend payment and the ongoing share buyback program.

Looking a bit deeper into the group performance. As in the previous quarters, but to a lesser extent this time, the top line of Q2, and I'm talking about order intake and sales was adversely impacted by translational FX effects due to a strong euro against some emerging market currencies like the Argentinian peso and the Turkish lira. Order intake was negatively impacted by EUR 44 million translational FX effects. Adjusting for this effect, the order intake declined in organic terms by 3.5% year-over-year. This decline was purely driven by the lower volume in the midsized order bracket between EUR 5 million and EUR 15 million. All other order size brackets, including the base orders below EUR 5 million, were up year-over-year.

From a customer industry perspective, not only beverage and food were growing, also dairy processing has slightly picked up. The growth in these customer industries was overcompensated by the decline in the other customer industries. Sales grew organically by 1.6%, driven by once again outstanding organic service sales growth of 12.1% year-over-year to which all divisions contributed. The catch-up effect from postponed service sales from the first quarter at Separation & Flow Technologies also contributed to this strong development. For the last 4 years, the service business has been growing organically in each single quarter, an impressive development. New machine sales have been impacted from the decrease in the order intake in the last 4 quarters and has therefore declined organically by 4.1% year-over-year in the second quarter. Due to the strong service sales growth, the service sales share stood at 38.9%, 3 percentage points higher than last year. EBITDA before restructuring expenses rose by EUR 9 million to EUR 201 million, resulting in a corresponding year-over-year margin expansion of 89 basis points to 15.2%.

Now let me continue with the figures for the Division Separation & Flow Technologies, which reported strong performance for all key performance indicators. Strong organic order intake and sales growth, coupled with considerable improvement in profitability. Order intake increased organically by 11% year-over-year, which was mainly driven by the customer industries food and pharma. And also beverage, marine, environmental applications, and the demand for new food were strong. So overall, quite a broad-based order intake strength. When looking at the order intake development on a reported basis, an adverse translational FX impact of EUR 31 million needs to be considered.

Sales in reported terms were slightly higher than in the prior-year quarter, but significantly higher when adjusting for the negative FX translation effects. Organic sales grew by 7.3% year-over-year, driven by an extraordinary organic service sales growth of 17.4%. This growth rate has been positively impacted by the catch-up effect from postponed service sales in the first quarter. As you might remember, the service sales in the first quarter have been impacted by a change of our logistic provider as part of our move into a new logistics center. Problems that occurred during this change were caused by our partner and led to postponed sales generation. This has been solved in the meantime and a significant share of the postponed sales -- service sales in Q1 have been recognized in Q2.

New machine sales have declined slightly by 1.3% organically. On the back of the very strong service sales growth, the service sales share has increased considerably by 4.7 percentage points to 50.6%. The higher service sales share in combination with the better margin quality in the new machine business resulted in a significant year-over-year improvement of the EBITDA margin by 119 basis points to 27.3% in the second quarter. Because Separation & Flow Technologies has already been growing its sales organically by 6.3% in the first half of 2024, we raised its divisional sales guidance for the full year 2024 from the original range of 1% to 4% and organic sales growth now to 5% to 8%.

Let's move on to Liquid & Powder Technologies, where we have further expanded our service business and the order intake has improved sequentially. Order intake for the quarter was down organically by 9.1% year-over-year, purely driven by a decline in orders between EUR 5 million and EUR 15 million. The volume of large orders has been slightly higher than in the prior-year quarter in the base orders. So all orders below EUR 5 million in size have been up year-over-year too. 2 out of the 3 large orders received in this quarter were coming from the customer industry beverage and one was awarded in chemicals. So it is not surprising to see that the customer industry beverage showed overall a positive development in this quarter.

In addition, dairy processing and farms were also doing well. The growth in these customer industries was overcompensated by the decline in chemicals, which benefited from 3 large orders in the second quarter of 2023. When looking at the sequential order intake development, it is important to notice that the order intake has continued its sequential improvement being slightly up from the level in Q1. Sales declined 2.4% year-over-year on an organic basis. Service sales continued its strong growth trajectory of the previous quarters with an 8.7% year-over-year organic growth rate. At the same time, organic new machine sales decreased by 5.8%. The lower new machine sales results from the decline in the order intake in the second half of 2023 as well as the low level of order intake in the first half of 2024.

Due to the stronger service sales growth, the service sales share increased by 2.7 percentage points from 23.4% in Q2 2023 to 26.1% in this quarter. EBITDA before restructuring expenses rose by EUR 3 million year-over-year to EUR 43 million, resulting in a corresponding EBITDA margin of 10.2% and up from 9.2% in Q2 2023. Higher gross profit resulting from the improved service sales share and better project margins has been the main profitability driver. Operating costs have remained stable year-over-year. Since Liquid & Powder Technologies has reported an organic sales decline of 1.6% in the first half of 2024, we adjusted its divisional sales forecast for the full year 2024 from the original range of 2% to 8% organic sales growth to a range of minus 2% and plus 2%.

Moving to Food & Healthcare Technologies, which continued its sequential profitability improvement and generated solid organic service sales growth. On the back of a high comparison base and slow investment decisions of our customers, the order intake decreased organically year-over-year by 11.5%. Both customer industries, food and pharma reported a decline, although Pharma has received one large order totaling EUR 15 million in the quarter. Sales decreased organically by 3.8% year-over-year despite a solid organic service sales growth of 4.2%. The new machine sales declined organically by 7.7%, resulting from the lower order intake in the second half of 2023. As a result, the service sales share expanded from 33% in the prior-year quarter to 35.8% in the second quarter.

EBITDA before restructuring expenses continued its quarter-on-quarter improvement, reaching now EUR 24 million in the quarter, significantly up from the low point of EUR 15 million in Q2 2023. The corresponding margin has not only improved from the trough levels of 6.1%, but also increased sequentially from 9.5% in the first quarter to 9.8% in the second quarter. When looking at the EBITDA margin in the first half of 2024, which stands at 9.7%, we are fully on track to meet our full year EBITDA margin target range of 9.5% to 11.5%.

Continuing with Farm Technologies, which had once again a strong service business in the quarter, but suffered from investment restraints of farmers in its new machine business. The market sentiment has not massively changed since the last quarter. It is still affected by uncertainty resulting from high interest rates, lack of subsidies, and downward pressure of milk prices in some regions, like, for example, China. As a result, the order intake decreased by 12.8% year-over-year organically, driven by the decline in the new machine business.

In terms of products, the new machine business was mainly facing lower demand in manual and automated as well as conventional rotaries and here, especially from China and the United States. When looking at the order intake development on a reported basis, an adverse translation FX impact of EUR 7 million needs to be considered.

Sales grew organically by 1.4% year-over-year, driven by outstanding organic service sales growth of 13%. This marks another quarter of double-digit organic service sales growth at Farm Technologies. New machine sales declined organically by 7.8%, reflecting the above-mentioned market sentiment. The service share increased further considerably on an already high level by 3.5 percentage points to 47.7%. EBITDA before restructuring expenses decreased slightly by EUR 2 million to EUR 28 million as the higher gross margin was overcompensated by lower sales volume and higher operating costs. The corresponding margin decreased by 38 basis points from 15.2% in Q2 2023 to 14.8% in Q2 2024.

Finally, let us turn to heating and refrigeration technologies. This division delivered once again a very solid set of results. Strong organic order intake growth, further service expansion, and significant rise in profitability. Let me run you through the details. Heating and Refrigeration Technologies has reported strong organic order intake growth of 8.8% year-over-year, which can be attributed to 2 reasons. First, the increase in the number of large orders. Larger orders for this division are orders with a volume of more than EUR 1 million, but below EUR 5 million; and second, the strong demand development in small orders, which are below EUR 1 million in size. In terms of customer industries, distribution and storage as well as food, we're the main growth drivers. Predominantly in food, we are supporting multinationals, which are executing their net-zero programs.

Sales decreased slightly by 0.6% organically. The strong organic service sales growth of 7.2% was not enough to fully offset the organic sales decline in the new machine business of 4.9%. The service sales share, however, increased considerably by 279 basis points to 38.2%.

EBITDA rose to EUR 80 million, and the corresponding margin improved significantly from 11.4% in Q2 2023 to 12.5% this quarter. Gross profit was up year-over-year due to positive mix and margin effects, which overcompensated the increase in operating costs.

Closing the divisional chapter now with the overview on the EBITDA growth contribution in the first half and in the second quarter of 2024. There are 2 important messages. First message, we have been able to increase our EBITDA before restructuring expenses in both time periods considerably. To this positive performance, almost all divisions contributed. While Liquid & Powder Technologies contributed positively to the profitability growth in the second quarter, it was overcompensated by the weaker development in the first quarter, so that the overall contribution in the first half has been slightly negative. For Farm Technologies, it is exactly the opposite. The strong performance in the first quarter has overcompensated the negative growth contribution in the second quarter, leading to an overall growth contribution in the first half of 2024.

And now the second important message. We have managed to improve, or at least, keep gross margin -- sorry, gross profit stable in all divisions despite facing declining sales in many cases. This reflects our pricing discipline as well as the effects of our efficiency programs.

Coming now to another important topic, net working capital. In the year-over-year comparison, net working capital increased by EUR 29 million to EUR 486 million despite a significant reduction in inventories of EUR 50 million. Main reason for this rise is the lower volume of trade payables, which needs to be seen in connection with the reduction of inventories. As you know, we are currently focusing on the reduction of our safety stocks to bring them back to the levels we had before all the supply chain bottlenecks occurred. This net working capital development is well-covered by our guided corridor of 8% to 10% as the net working capital to sales ratio landed at 9.1%.

Free cash flow has been strong for the second quarter. But let's have a look at the details. More than 58% of the EBITDA before restructuring expenses has been converted into operating cash flow. After a high net working capital outflow of EUR 115 million in the first quarter, the outflow has been lowered to EUR 28 million in the second quarter. Main reasons for the outflow were the lower amounts of advanced payments received in the quarter as well as higher quarter-on-quarter inventories.

The CapEx-related outflow of EUR 41 million has been rather low in comparison to our full year guidance 2024 of around EUR 260 million. This is mainly driven by the buildup of our new site at lyophilization in Germany, where groundbreaking took place in March this year, where the main investments will occur during the second half of 2024. So the step-up in CapEx will be seen in the coming 2 quarters. As a result, free cash flow stands at EUR 83 million, leading to a net cash flow of EUR 64 million after deducting lease payments and interest paid. The strong net cash flow was offset the cash-out for our ongoing share buyback program and the dividend payment so that we ended the quarter still being net cash with EUR 32 million.

Bearing in mind that we had a negative free cash flow in the first half of 2023 and the first half of 2022, a positive free cash flow of EUR 26 million in the first half of this year is a very solid achievement. As a result, we have improved our last 4 quarters' free cash flow conversion ratio from 48% the end of the first quarter to now 62% at the end of Q2. We are comfortably within the target corridor of 55% to 65%. However, as stated earlier, there is a step-up in CapEx expected for the second half of 2024. This will have an impact on our cash conversion ratio.

With that, I hand back to Stefan for the outlook.

[Stefan Klebert, executive]

Thank you very much, Bernd. Let me now come to our raised outlook for the fiscal year '24. As I have already presented to you at the beginning of today's call, our raised guidance for the EBITDA margin in ROCE. Let me only add here that we are, of course, confirming these upgraded targets as well as our unchanged organic sales growth guidance of 2% to 4% for the full year of '24.

Finally, our road map for 2024. The next important date will be our Capital Markets Day on 1st and 2nd of October in Amsterdam and Rotterdam. We will kick it off with an informal dinner at Ron Gastrobar on the evening of the 1st where you will also -- where we also will serve you alternative proteins, followed by presentations and a site visit on the 2nd of October to our customer, innocent. The invitation will be sent out in the next days, and we are looking forward to seeing you there.

That concludes my presentation, and I hand back to Oliver for the Q&A.

[Oliver Luckenbach, executive]

Yes. Thank you very much, Stefan and Bernd. And yes, with that, I also hand over to the operator, and please start the Q&A session.

[Operator]

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

[Klas Bergelind, analyst]

So my first one is on the order pipeline. We obviously had a issue with larger orders not coming through because of high interest rates among other things. And now the [Indiscernible] forecast, but also more widespread weakness across the midsized orders. Do you still feel confident as I understand that sort of second half orders can be higher than the first? Do you think that on the large orders about EUR 15 million will now come through even more into the second half, or is this going to be more broad-based also on the midsized level, i.e., the midsized here and [Indiscernible] normally in the quarter on starter?

[Stefan Klebert, executive]

Okay. Thank you, Klas. First of all, I think what I can tell you is that we expect a second half of the year, which will be bigger in order intake than the first half of the year, and we are also very confident that it will be also above the last year's second half of the year. So I think this is quite a clear message.

We also have a lot of interesting large projects in the pipeline. And it is, like you know, sometimes quite difficult to predict. Is it now the Q3 or Q4 when we will see this order coming in or might there be also a risk to be postponed to '25. But I can tell you and confirm you that there are many interesting projects around, and we are optimistic that we also see in the second half of the year interesting large orders kicking in. And also midsized orders, we have interesting pipeline. So as I said, we are looking cautiously optimistic to the second half of the year. The environment is not the best all over the world. It's very clear. But what we see here in our pipeline is quite promising. We will see a higher order intake compared to the first half year and also compared to the last year second half of the year.

[Klas Bergelind, analyst]

And my second one is on the margin in SFT, it's a very solid development. Obviously, the service growth came back here following the logistics issues in the first quarter, which obviously improved the mix. But also, Bernd, you talked about the new machine business, that's all embedded margin. One thing that's becoming apparent this reporting season among the industrials is that we see companies starting to talk about pricing running ahead of cost inflation and that this can normalize into the second half. And in some cases, we see it already coming through the overearning effect normalizing weighing on EBITDA. I guess the service mix. I'm trying to understand, Bernd, Increasing the margin in...

[Bernd Brinker, executive]

Klas, you're almost impossible to understand. There's a very bad voice quality. I don't know if you have a chance to improve that, but it's very difficult to understand.

[Klas Bergelind, analyst]

Okay. Can you hear me now?

[Bernd Brinker, executive]

That's not getting so much better. That was an echo at the end.

[Klas Bergelind, analyst]

Was there any price versus cost boost in the quarter? Is pricing running ahead of cost inflation in SFT?

[Bernd Brinker, executive]

Okay. Got it. I mean the price increases we have been able to make during the last months are not in that magnitude like we could increase prices in the last 2 years, let's say, where we had the high inflation rate, and it was also not as necessary as it was during that period of time. So the performance you see also in SFT is not really based on pricing, that's really efficiency measures and, of course, also a little bit of catch-up effect from the missing service business, which we saw in Q1.

[Klas Bergelind, analyst]

Okay. Well, that's good to hear. My very final one, if you can hear me, is on tariffs thinking ahead of the U.S. elections there in November. Can we talk about your sourcing strategies as we stand now, where you're more local for local versus sourcing components from China into the U.S. in particular.

[Stefan Klebert, executive]

Okay. I mean, what the good message is here. I mean you might remember that we are informed also very often that we have quite a broad range of suppliers, almost in -- almost everywhere, which is a kind of potential, which we also could use during the last years to improve our purchasing policy. But the positive thing is that we are not depending on certain regions or certain areas. So we always would have a choice. And even if geopolitical tensions would increase, I can say that we are not depending here on single markets.

[Operator]

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

[Sven Weier, analyst]

The first one is kind of following up on Klas' question on orders and looking a little bit beyond what you see in the second half because we -- you've reached, obviously, now this year, the 15% margin target already. The other aspect of the guidance of the 4% to 6% organic growth. I think we're all conscious of the fact that probably the orders need to improve also after the second half. So I was just wondering what you see as the pipeline beyond second half? Is it as promising? I guess so. But yes, maybe you can add a few words on this one.

[Stefan Klebert, executive]

Yes. Thanks, Sven. I mean I just can repeat what I said. We expect a second half which will be better than the first half and will also be better than the -- compared to the last year's second half. The pipeline is interesting. The pipeline is there. The environment is like it is, but we also see a little bit a trend already in the early cycling business that this is picking up. So let's see. I mean, the world is volatile, yes. Like we all know, especially when we look at the last few days. But it is -- I mean, the good thing you know our business very well, and we are a very resilient business. So as long as there are human beings on the planet, who need to eat and drink something sooner or later, our customers have to order, especially when we see a growing world population, that makes me very optimistic that we also will see quite a solid second half of the year when it is about order intake.

[Sven Weier, analyst]

Yes. That sounds familiar, Stefan. The second one is also kind of a follow-up on pricing because more on the project business side, because we had obviously the update from [ Chromes ] last week, and they said that clients are more proactively asking for pricing discounts by also seeing some cost deflation. They say they will be very disciplined about it. But yes, I was just wondering if that is also maybe something that stretches the project decision making a bit further because clients are a little bit more price aware on the project side?

[Stefan Klebert, executive]

Yes. I mean, clear price is becoming a bigger issue than maybe 2 years ago, where everybody was in a kind of after COVID cycle and having a need to order. That's -- I mean, in the machine building business, we always have a little bit cycles. So -- but we keep our prices stable. There is also -- I always say, no market ever was growing by decreasing prices. And that is a question of discipline. And we are quite optimistic that we also will keep our margins here while getting also interesting orders in the future.

[Sven Weier, analyst]

Sounds good. And the final question I have was just on Farm Tech, because there you kept the organic revenue guidance unchanged at plus 2% to 6%. So should we assume that the dip we saw in Q2 orders is just a dip and you see that coming back in the second half? Or, any other reason why you keep being confident on the 2% to 6% for Farm Tech?

[Bernd Brinker, executive]

Hi, Sven, Bernd here. So I think in Farm Tech, we are still confident that we meet our full year indication, which we have given. So therefore, for us, there was no reason to adjust this. We only changed for the reasons we've just highlighted. We changed the order intake numbers, or -- sorry, the sales numbers for SFT as well as for LPT and we increased the return on capital employed expectations for heating and refritration technologies. But for Farm Tech, given what we see in terms of pipeline, given what we see in terms of expectation for the full year, no reason to adjust the indication.

[Sven Weier, analyst]

Because I guess that's more short lead time business, right? So you are somehow also dependent on what you get in terms of orders in the second half, right?

[Bernd Brinker, executive]

Indeed, the lead time is shorter compared to the bigger project business in other areas.

[Operator]

And the next question comes from the line of Sebastian Kuenne from RBC Capital.

[Sebastian Kuenne, analyst]

I have a follow-up on Farm Tech. The backlog is about 8 months. So I can understand that you maintained the guidance for growth. But the softness of the overall farming market is not going away with U.S. farm income like dropping very drastically; Europe, not great; Brazil, very tough times these days. What's your confidence for 2025 for the demand? That will be my first question.

[Stefan Klebert, executive]

Yes, what is the confidence? I mean, first of all, I mean, we don't guide anything for '25 yet. It's very clear. But I mean, it's also -- it's a very important food worldwide. There is no doubt, and it comes from cows and there is a continuous underlying trend towards more automation. That is also a consolidation of farms is going on. There are good reasons why especially in the U.S. the farm technology market is down. That has also something to do, of course, with the high interest rates, that also has something to do with a lot of taxes the farmers still have to pay based on the good years they had in the last years. So -- and that is something which might cause at the moment a little bit a downturn here. In China, we see the milk prices under pressure, which also might recover sooner or later because there is always a kind of cycle. And if you add and sum that up, I think sooner or later, that will come back, because like I said before, as long as there are human beings who need to eat and drink, that's the same like it is valid for farm technology. The milk needs to come from somewhere. And the consolidation of farms going on. The world population is increasing, yes. And therefore, we strongly believe that this is a continuously growing market.

[Sebastian Kuenne, analyst]

Then on food processing, do you have discussions with investors basically saying that people can go to restaurants, which is unprocessed food, or people can go to supermarkets, which is processed food? We have a massive staff cost inflation in the restaurants. So the budget is still towards supermarkets instead, and therefore, we have higher volumes, and therefore, we need to reinvest more money for food processing and equipment? Is this a discussion that comes up with either investors or with the food processors themselves? Or what is the reason for your confidence for food processing these days?

[Stefan Klebert, executive]

Yes. It's also based, I would say, on the underlying trends that people -- I mean, world population is growing. We have growing urbanization. So people are more living in larger cities compared to years before. It's not this kind of small cities and they don't have their own garden. So food processing, I think, will continue as long as world population is growing, as long as people are clustering together in larger cities that are important trends. And to be honest, also restaurants are becoming more and more expensive. And if you see who can really afford to go to restaurant every week, it's, I would say, only a small proportion of the population who can afford that. And therefore, I think there are very, very good reasons why we see that food processing is a growing market and will also grow and continue to grow in the future as well.

[Sebastian Kuenne, analyst]

Yes, sure. But do you have these days more discussions with food processors saying, will we see more demand because of that shift from restaurant takeaway towards supermarkets, or is that not a discussion you have currently?

[Stefan Klebert, executive]

To be honest, no, there was no discussion I had in the last weeks or months. But as I said, I can understand if there is a trend, I also would say it's rather a trend towards more food processing than towards people are going more often to restaurants, mainly because of cost issues and cost reasons and other megatrends.

[Sebastian Kuenne, analyst]

Understood. My final brief question is on currency. Since Q3 last year, we see very strong currency headwinds that are somewhat above what the model should show, our currency model show. And you mentioned Argentina, Turkey still being a relatively high portion of revenues. Is this something you think will roll over then in Q3 that we see much lower currency headwinds, especially in SFT, or is this something we should expect for the rest of the year?

[Bernd Brinker, executive]

So Sebastian, I don't want to share my view on currency movements going forward, so I don't have the crystal ball available. We don't...

[Sebastian Kuenne, analyst]

You have your currency as of today and you have your budgets probably.

[Bernd Brinker, executive]

Yes, sure, sure. But obviously, the question on -- the question on reported numbers and organic numbers is something which significantly depends on the development of the currencies throughout the rest of the year. We have a view, this is part of our guidance as far as organic sales growth is concerned. But other than that, I don't want to share my view on currency movements going forward.

[Sebastian Kuenne, analyst]

Yes, because it's not part of your guidance. That's why I'm asking.

[Operator]

The next question comes from the line of Christoph Dolleschal from HSBC.

[Christoph Dolleschal, analyst]

I've got a few follow-ups. The first one, again, on order intake. Consensus currently looks at around EUR 2.7 billion. And when I take your view so far, like H2 to be above H1 and above H2 last year, I would assume you feel comfortable with that number?

[Stefan Klebert, executive]

Yes.

[Christoph Dolleschal, analyst]

Okay. That was a quick one. And then again, on the order intake shortfall in Farm Technologies, at least against estimates. I remember that you said that the European Union subsidies are coming late this year, and this obviously impacts the demand from the farmers in Europe. So could you probably give us an indication in Farm Technologies how much of the, say, decline is structural, i.e., China, U.S.? And how much of it is maybe just a delay because of Europe being late this year? And actually, when are these European subsidies coming?

[Bernd Brinker, executive]

So I think this is a very artificial question, which is very difficult to give you a precise answer. So what we see is that there are -- so we have an expectation on subsidies, especially in some European markets. This is not the case for the U.S. market, neither for the Asian market. There are some other structural elements in markets such as China and the U.S., which we have just discussed already. So for Europe, we still expect for some selected countries that subsidies will kick in. But I cannot give you a clear separation of effects for the second half.

[Christoph Dolleschal, analyst]

But the subsidies are going -- do you know when they're going to come, in Q3 or...

[Bernd Brinker, executive]

Unfortunately, this is not something which we know definitely. So there is an underlying expectation that this will happen in the course of the end of Q3, early Q4.

[Christoph Dolleschal, analyst]

Then again, on foreign exchange. Could you give us a rough idea of how much the revenue shares of Argentina and Turkey are within SFT, because here, the currency impact is obviously the biggest, and you don't disclose these on a group level, but it would be easier to model if we would know roughly how much comes from those countries in SFT?

[Bernd Brinker, executive]

Yes, sure. So we are not disclosing those numbers.

[Christoph Dolleschal, analyst]

And then, okay, last but not least, on the verticals. Could you give us an idea of how you see your most important verticals developing in the second half and especially because chemicals is currently still a drag? How you see the chemicals vertical performing in H2?

[Bernd Brinker, executive]

Yes. I mean we have interesting projects also going on in our chemicals vertical. I mean, chemical is a very broad thing. You know that we are focusing in our chemical business very much on sustainable solutions are. So for instance, we have interesting projects in carbon capture, we are active in lithium preparation and recycling. These are interesting things which are going on for us. So we might be a little bit different from the traditional or typical average chemical vertical. But also here, we see promising and interesting activity.

[Operator]

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

[Akash Gupta, analyst]

I've got 2 as well, and I'll ask one at a time. My first one is a follow-up on your demand commentary. Can you talk -- can you tell us about -- a bit more about this recovery in demand that you're expecting? Where is it coming from? Is it in Europe, Asia, Americas? And could you also elaborate by business units that where do you expect more recovery, whether it's in dairy farming, in dairy processing, food, or beverage? And where you are more cautious on demand recovery going into second half? So that's the first one to start with.

[Stefan Klebert, executive]

Okay. So what I can tell you, Akash, so food has been a growth contributor in the first half and continues to develop well. But here, it depends on the specific application. So beverage was strong in 2023 with some projects already arriving in -- so such as in LPT and some projects are partially postponed by taking their time in the negotiations. Picture in pharma is fine as well as development in heat pump technology.

Dairy farming market sentiment has not necessarily changed, so we've touched upon that already. Since the last quarter, it's still affected by the uncertainties which we have discussed high interest rates, lack of subsidies, and some downward pressure of milk prices in some regions, especially China.

And last one on the dairy processing, we see some slight pickup here mainly on the project side.

[Akash Gupta, analyst]

And maybe just a follow-up to that. When we look at the split between Q3, Q4, shall we expect more stronger Q4 than Q3, or have you already received some quarter in July that gives you more confidence on second half recovery and mean that Q3 could also be strong already?

[Stefan Klebert, executive]

You know Akash, how did feel that is to protect quarters in our business quarter?

[Operator]

Please stand by. The conference will resume shortly.

[Stefan Klebert, executive]

Hello?

[Operator]

Hello. You're back in the room.

[Stefan Klebert, executive]

Okay. So traditionally, I would say, normally, the Q4 should be a little bit stronger than the Q3. That's what we expect. But it is a very, very short period of time. When we talk about quarter, when it is about our business and especially if it is about larger orders and larger projects.

[Akash Gupta, analyst]

And my second question is on upcoming Capital Markets Day in terms of -- if you can provide us some flavor of what we shall expect and what shall we not expect? And maybe on the same topic, and Stefan, when you came in, GEA was in the middle of a perfect storm and you have steered the ship out of the crisis. Do you think now is the time for you to move back to adjusted EBIT or operating profit guidance metric from EBITDA, which will also align your profitability KPI with the rest of the capital goods sector?

[Stefan Klebert, executive]

Yes. I think what you can expect is an interesting day with a lot of news and with a time frame which will give you a clear indication until the year 2030. And hopefully, Akash, you can also join us in the evening before for dinner because that will also be interesting because we also try to serve you a variety of new foods, like I said before, to really taste the future. And the second day, we also visit our customer, innocent, which is also a perfect example of how we combine our technology with sustainability. So all in all, I think it is really worthwhile to join us. And please apologize that I can't spoil it too much today.

[Operator]

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

[Sven Weier, analyst]

I had a few follow-up questions, please. The first one is on CapEx. I think you reiterated the EUR 260 million, meaning that you, I think, have almost EUR 200 million in H2. I was just wondering if there is not maybe the chance that things move into next year on the CapEx side because that seems really quite a big number for one half.

[Stefan Klebert, executive]

Yes. Happy to take that question, Sven. So I admit that from the first glance, it looks like that, but we are very confident as of today that we will come very close or even meet the EUR 260 million based on the investment, the decisions we've already made, and which will lead to the cash outflow in the second half. So no reason for us to adjust the CapEx guidance.

[Sven Weier, analyst]

And should we still assume this number to come down meaningfully then in '25? I suspect you will probably also give a midterm guidance at the CMD. But is it still fair to assume that this is a very elevated level this year and it will start to normalize again next year?

[Stefan Klebert, executive]

So in general, I would also not spoil it too much, but I can confirm that we guided for a level of roughly EUR 200 million through -- during our Mission 26 journey. That is still the case. When we announced the EUR 260 million, we clearly indicated that this was driven by a very single project lyophilization, and this will not be the case on a regular base going forward. So you should expect us to come down at least to the EUR 200 million.

[Sven Weier, analyst]

Understood. And the final thing from my side, I just wanted to check in on M&A, whether there's any new developments there, or is it still very much the same as we had it now for some time?

[Stefan Klebert, executive]

Yes. I mean we are always looking. We are always in touch with companies. But there is nothing which would be on a maturity level right now where I could tell you something what is different now. But also here, I'm quite optimistic that sooner or later, we will find right targets. But it's -- like you know, Sven, we also don't want to do any stupid things, not buying too high prices, not buying any companies which are in trouble. So therefore, we are quite selective. But yes, cautiously optimistic also here.

[Operator]

As there are no further questions, I would now like to hand back to Stefan Klebert for any closing remarks.

[Stefan Klebert, executive]

Yes. Thank you, operator. Thank you, everybody, for your participation and for your questions. Let me summarize today's statements. First of all, we had a strong first and half of the year with a record EBITDA margin for a first half. That is really, I think, remarkable and outstanding. Also ROCE is exceeding 30% for the eighth quarter in a row. We raised our EBITDA margin and ROCE guidance for full year '24, implying we might already achieve our Mission 26 targets 2 years earlier. And we have left the trough levels in order intake of EUR 1.25 billion and EUR 1.26 billion behind us. And we are expecting a higher order intake in the second half than we had in the first half year.

We will present to you our strategic plan and targets until 2030 at our Capital Markets Day in October. And I think also that will be a worthwhile day with interesting information, what kind of additional potentials we see in GEA.

That concludes my presentation, and I hand back to the operator.

[Operator]

Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect. Speakers, please stand by.