GEA Group's (GEAGF) CEO Juerg Oleas on Q4 2016 Results - Earnings Call Transcript

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GEA Group AG (OTC:GEAGF) Q4 2016 Earnings Conference Call February 7, 2017 8:30 AM ET

Executives

Donat von Muller - Head of IR

Juerg Oleas - Chairman of the Executive Board, CEO

Niels Erik Olsen - Member of the Executive Board

Steffen Bersch - Member of the Executive Board

Helmut Schmale - CFO

Analysts

Jack O'Brien - Goldman Sachs

Sven Weier - UBS

Max Yates - Credit Suisse

Peter Reilly - Jefferies

Gianmarco Bonacina - Equita

Sebastian Growe - Commerzbank

Arash Roshan Zamir - Warburg Research

Michael Kaloghiros - Bank of America

Sebastian Ubert - Soc Gen

Ben Maslen - Morgan Stanley

Lars Brorson - Barclays

Daniel Gleim - MainFirst

Peter Rothenaicher - Baader Bank

Operator

Good day and welcome to the GEA Group preliminary full year 2016 conference call. At this time I would like to turn the conference over to Donat. Please go ahead.

Donat von Muller

Good afternoon and welcome to GEA Group’s fourth quarter conference call. I am here with GEA’s CEO, Juerg Oleas, who will later answer your questions; and CFO, Helmut Schmale, who will now present the numbers.

Helmut Schmale

Welcome to the call. Many thanks, Donat. The first slide, which would be the picture, which summarizes the key messages for a quick overview. We shall address all details during the course of today’s presentation.

In [terms], we came out about where we – what we said in October, where we would come out for the end. While order intake could not quite match prior year’s record all time high, as we had predicated in an earlier last quarter press release. We still booked a comfortable amount of orders on time.

EBITDA, cash flow driver, and return on capital employed were all adversely impacted by the profitability issues at the Business Area Solutions, which we had already discussed after the quarter three.

Yesterday in a special news release we announced a share buyback of 450 million euro, which will be executed starting on March 1, and the repurchased shares will be canceled afterwards.

Let us turn now to the financials of the fourth quarter. The order intake declined by over 3% before currency and structural impacts, which is simply explicable by the fact that there were a little less larger orders from the Business Area Solutions.

The Business Area Equipment experienced moderate growth despite the continuing drag of dairy farming, oil, gas and marine business. Sales were down by about 4.4% before currency and structural impacts in business equipment notably because of dairy farming, in BAS, in Business Area Solutions, mainly because of slower execution of [orders]. As you will see also in the appendix on page 29, order backlog at BAS built up by some 160 million euros or 10% since the beginning of the year because of that.

GEA’s EBITDA margin dropped by 136 basis points in the fourth quarter, which is mostly attributable to the margin inefficiencies at BA Solutions. To isolate the margin impact a new and more precise course allocation scheme has had an – on business area level an impact. We have shown in comparison what the margins on BA would have been without the charging impact.

The margin development over time and the last 12 months average reflects the recent quarterly declines in quarter three and quarter four in Business Area Solutions against prior year. As explained after Q3 this concerned project cost [Indiscernible] around the introduction of technical innovations and inefficiencies during the transition process to the new organization as well as lack of pricing discipline. Our aim will be to reverse this trend in 2017.

In quarter four, we saw good sequential recovery of order intake to the healthy level of quarter two. The volume for orders below 5 million euros even beats quarter two. Two larger dairy orders, which we missed in quarter three eventually could be booked in the fourth quarter.

Order intake by country. This slide indicates last year’s order development in all our country markets that account for I would say at least 2% of GEA’s order intake. The book-to-bill ratio for each country is shown in the right hand column. Over the course of 2016, our biggest national market, the United States, showed healthy growth while most European nations last orders year-on-year with the exception of only Poland, Spain and Italy.

In Asia, we saw less orders from China, but more from eastern Asian countries. And one of the larger Latin America countries, Mexico, grew while Brazil declined. Countries that have been smaller markets for GEA so far, although there are a few big economies among them as India and Mexico, saw double-digit order growth last year. The sample of the top 12 grew at an average whopping 60%, and not a single country grew less than 30%.

We mainly attribute this dynamic effect to the better coordinated market approach that we now realize in the one GEA country sales organization compared to before. Order intake by industry. Dairy farming saw a little sequential uptick in orders. The book-to-bill ratio for the entire year was slightly above 1, and this could be the beginning of a bottoming, but quarter one might well be sequentially down again for seasonal reasons.

Dairy processing saw a strong sequential uptick essentially reflecting that orders we had really expected in quarter three, eventually only materialized in quarter four. For the year as a whole, dairy processing stayed slightly behind prior year. Given the delay in the execution of large orders we addressed at quarter three, book-to-bill stands at a comfortable 1.09 for the year as a whole.

Also reflected in the additions of our recent acquisition of [GEA AG] among other things food applications are strongly up, no matter how [Indiscernible] the periodic perspective. Book-to-bill here stands high for the year as a whole. Beverages by contrast declined. This is an industry where we prefer to stay away from projects that dilute our margin expectations.

Orders from pharma declined year-on-year, but the 12 months book-to-bill ratio still exceeds 1. Chemical orders were down in quarter four, but up for the year as a whole.

Oil, gas and marine although smaller in their share rebounded sequentially, but are still down in a year-on-year comparison. And finally the assorted mix of other applications among them, but are limited to environmental is doing quite well.

So altogether while we see changes here and there, over 40% strongly grew from a LTM perspective, while 30% to 40% of all exposures clearly declined. Among the strongest declining industries like dairy farming, oil, gas and marine growth momentum appears to be improving though.

Customer industry over time, this slide compares order intake and sales of our major customer industries. The curves are smooth as they are displaying all in 12 months average. In the upper left, you will see dairy farming and processing. Farming appears to be bottoming while processing posted a large boom in 2013 and 2014 is now in an inconclusive sideways movement. In the medium term, we would expect to see growth here again.

Food is picking up momentum and at our capital markets day we gave a couple of explanations why we think our new organization strongly supports food applications. Beverages against that have taken a downturn as I just remarked before. Pharma has come down a bit, while chemical is buoyant. On balance the two are moving sideways.

The rest of the business had a very good run recently, which should show up in sales further into the year 2017. On this page you will find a lot of details on the book-to-bill ratios. We are ready to introducing here this formal statistic on a book-to-bill data by cross-sections of industries and regions in a slightly different format. The [map] above shows you, which combinations standout in terms of book-to-bill ratio. The lower part shows you how much weight, which cross-section carries in terms of share of overall order intake.

[Indiscernible] that geographic split reflects how we manage the country sales organization within GEA. Western Europe appears, for example, in three regions in that split, German-speaking countries and the countries east of it, including Russia appear under DACH and Eastern Europe. Western Europe, Middle East and Africa includes the [Armenia] and other Southern European countries. Northern and Central Europe includes the UK, Benelux, and the Nordics.

In terms of regions, the Americas are strongest, while the DACH and Eastern Europe regions also does well. Northern Europe shows some impact from Brexit. In terms of industries, dairy processing and food account together for almost half of GEA’s customer industries, exhibit a very healthy book-to-bill ratio.

The order backlog grows to 3.2 billion and the overall book-to-bill ratio is about 1.04 on a rolling last 12 months basis. While not the entire backlog will already turn into revenue in 2017, this increase definitely adds comfort to our expectation that sales will grow again in 2017.

Return on capital employed, the adjusted return on capital employed, fell to 21.2% in a trailing LTM perspective. However, stays within our long-term corridor or 20% to 25%. Royalty took a double hit in the past two quarters. In the denominator from an increase in working capital as I will comment upon the next slide, and in the numerator by the low EBITDA for BA Solutions.

We expect the return on capital employed to rebound in the future given the targeted improvement of working capital and the improved profit according our 2017 guidance as we will see then a couple of pages later.

Let us then turn to the preliminary working capital development as I was already speaking about that. The working capital measured at the reporting date increased by about 200 million euros in a year-on-year comparison. In its annual average, the working capital sales ratio crept up to 14.5% in 2016. This is clearly more than we would like to see and so we have initiated a special task force to look into ways of better harmonizing processes involving GA Finance, operations and operations on the one hand and the external shared service centers to which we have outsourced aspects like [progress billing] on the other hand.

We expect this task force to identify action plans shortly. To provide more transparency on the drivers of the working capital we split out the POC effects from trade receivables and advance payments. As the page shows, normal accounts receivables were the biggest driver for the increase of working capital at the reporting date.

Having transferred the invoicing to third-party shared service centers in [Indiscernible] there is room for improvement in the interfaces with our staff in the collection process. We have a task force working on this as I just mentioned. The increase in POC receivables that is the excess of work in process inventory for contracts with [billings] has to be viewed net of increases in POC liability.

The such defined net POC receivables went up by 66 million euros. We are analyzing if a delay in progress billings contributed to this. Advance payments, now without POC, improved 60 million euros. Hence my point here is that it was not a huge increase in POC accruals, which was the main culprit for the increases in working capital. Inventories also went up, which is largely a function of order backlog having gone up though.

In summary, we think that unduly high working capital is one of the inefficiencies still existing in the inner workings of one GEA. We initiated that or I mentioned special task force in order to define immediate actions for improvement and harmonization of processes between in-house GEA finance and operations, and the external shared service centers to whom we outsource as I mentioned for example the invoicing.

Cash flow driver, equal to return on capital employed, the cash flow driver margin has been impacted by the decline in EBIT margin and the working capital buildup by some 50 million euros in the annual average. Capex was largely unchanged at 91 million euros. Let me then add something which is not on the slide here. I can report today to you that our net liquidity, the net cash position, at year-end 2016 amounts to around 700 million euros, which is a reduction by about 200 million euros compared with the year-end 2015.

Service business, our service business kept growing by an organic 4% while new machine sales decline. This made for an increase of the share of the service business to 31%, a number likely to come down again when new machine sales will eventually pick up. The growth in service business for full year 2016 outperformed the growth in the new equipment business, whereby the service volume of BA equipment grew only slightly, reflecting mainly here also the adverse market conditions in dairy farming that also affected the service business during 2016. The service business for BA Solutions grew by 7%.

In the Business Area Solutions, the potential for expansion is higher than given the overall lower share, which you still have today. Our service initiatives, which represented our most recent captured markets, they are shown in the results, and we will keep pushing for higher service intensity.

Now let us talk about the outlook on 2017. We gave an outlook, where we are expecting moderate growth in sales in reporting terms. We believe that we will or we are aiming for an operating EBITDA adjusted for strategic projects of some 620 million euros to 670 million euros, and the operating cash flow driver we see in the corridor of 8.5% to 9.5%.

Of course, we see some pre-conditions, so that needs an absence of any further weakening of the global economic growth. In particular, a material weakening of any of our relevant customer industries or an adverse shift in demand among those industries, resulting in a negative margin impact like we have seen in the milk and dairy and farming business.

And of course, the guidance is under the qualifier that we would not like to see any material adverse currency impacts be it translation or competitive impacts. So again in a nutshell, we expect the sales to grow moderately. The corridor for the operating EBITDA is between 620 million euros and 670 million euros, and the operating cash flow we expect to be between 8.5% and 9.5%.

That concludes my presentation, and we now are welcoming your questions.

Question-and-Answer Session

Operator

[Operator Instructions] We will now take our first question from Jack O'Brien from Goldman Sachs. Please go ahead.

Jack O'Brien

Good afternoon. Thank you for taking the call. I just to get to grips with the guidance, if I may, so if we assume moderate revenue growth, can you help us move from sort of this year’s EBIT towards the next year, and by that I mean what sort of restructuring benefits and costs should we be anticipating, and if we also consider some of the sort of reasons for the profit warning back in October like the sort of cost over runs technology issues. How should I be thinking about the recoverability of some of those factors? That's the first one.

And the second one, just like to understand in a bit more detail, on the working capital and the cash flow driving margin guidance which has changed and lowered. Should I be right in thinking that you therefore think that perhaps the working capital went unwind in 2017? Any clarity, that would be great, thank you.

Juerg Oleas

Thank you for your question. This is early. Coming back to your first question, you asked about how to understand the guidance and how much of that is restructuring etcetera. We are continued to implement the fit for 2020 savings. So, that is one part of that. The of course, as we also mentioned from the hiccups we have to announce in Q3, which we're competent in Q4, which is part of our full-year result. We are fixing a couple of them, even though some of this inefficiencies as we also said in the Q3 call, we will have a carry over into 2017 that we are confident that we are fixing gradually one after the other.

For the so called bad projects of because of big source of this kind of technology which we talk about in the Q3 call, you're in Q4, we took prudent view of them and adjusted the provisions for that. So, as from the today's point-of-view, we don’t see any further loading for 2017. So, it is not part of that balance sheet. We have taken provisions in Q4 and previous to that to our best

Knowledge.

So, it is a combination the increase in EBITDA is a combination of course mainly of volume, then the benefits of the restructuring, then the benefits of fixed income of the inefficiencies which we talked about in Q3, and keep in mind that we also factored in headwind which it is like that of about anything between 30 and 35 million of wage increases because we decided not to go to the limits on the wage increases on a worldwide basis, because we have stressed our organization quite a lot in the last one and a half years with the in some and is quite massive size down of the organization.

So, on the worldwide basis, we have decided here in the boards that we will increase the wages as recommended by the different consultancies and statistics. So, we are not going into a special of the lower end etcetera. But that means for the staff we have on board, additional cost of about 30 to 35 million, so that also factored in and in for in both, this is that if of course that itself despite of this personnel cost increase in increase of the gross margin. More pricing discipline etcetera and that leads us with a new guidance of on an EBITDA scale of 620 to 675.

Helmut Schmale

Yes. Let me then comment on the cash flow driving guidance. We have taken here a cross approach in a way that might affect the average working capital, for the last year was 14.5% over savings which gives around €650 million. At year-end though we ended up at €750 million which 16.7% over saves. In order to come down on this with the working capital and to reach the guidance corridor, we need of course to substantially reduce the average working capital.

And might affect that in all our experience at the beginning of the new fiscal year 2017 will see a swing back in the working capital in a way that the first months will for achieve up compared to what is the working capital at the year-end. So, there is a lot of work to be done in order to manage on the working capital in average buy by substantially more than €100 million to be in line with our cash flow driver guidance.

Jack O'Brien

Okay, great, thanks.

Operator

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

Sven Weier

Yes, thank you. Thanks for taking my questions. I got three. The first one refers to your revenue guidance, you just mentioned a moderate increase, on the other hand your backlog is up more than 200 million. So, is it you taking a conservative approach about potential cancellations that you might still have out of this backlog? The second question is just on the your investigation, your due diligence that you bid after the Q3 results, do you find that your process has now completed, that you've kind of turned around every stone in the organization and you're pretty sure that you discovered all the issues.

And the last point is just coming back to your point you made on the wage increases. And should we see that rather a little kind of a one off development this year or do you see that more of a recurring issue and would that mean that you have to increase your cost saving target at some point in order to fill get back into this 10% to 16% margin corridor. Thank you, very much.

Helmut Schmale

Yes, thanks for your questions. Number one question about the sales guidance whether that is a cautious for you. I wouldn’t call it like that, you're of course right that we have filled up to mostly end of the year and not a higher order backlog than in previous time which then we will at certain time convert also into sales of course. We don’t see any unusual cancellations, however I have to say also that also last year we did see cancellation of an order intake as we know of about 18 million in the area of pharma which was totally unexpected to us but we had to accept that.

It was because a certain drug was not approved, so the customer came back to us and asked for amicable settlement that we cancel that order. That happens of course I think every year here and there but we don’t see foresee for 2017 any unusual cancellations. So, I believe that order, our order backlog is a solid one. We've have any unusual cancellations which occur in normal times also. So, the guidance see as we say it, whether it's conservative or not, I would not say that.

Maybe a little bit on the conservative side because we have seen in the previous year that sometimes it's more difficult that we have foreseen to convert order backlog into sales not only because we had the reorganization last year but also because in some areas we do see some slower development of the customers, so that their execution they approve the process of their several approval process, etcetera are slowed and some years ago or thus far we are bit more cautious there in the speeds to convert the order backlog.

Regarding the due diligence and the findings out in the call of Q3 of what happened up to September last year, I would say that yes we have prepare difficult and assessed the things and looked on the discounts as you said. But I would not say that we have fixed everything. We are still on the way to fix in it, therefore I suggest there to previous question. There is a slight carryover from previous year inefficiencies into this year. And that we did factor in into 2017 balance sheet or guidance.

But I personally believe from what we know now that we have analyzed all the fill to be fixed processes and to streamline processes and its now been out to worked in --. Regarding the wage increases, I will not call it a kind of a one off. What I can tell you is that two years ago for the year '15, we were more stringent on wage increases because we did foreseeing that anyhow we're going to have a lay of program due to fit for 2020. Then in within 2016, we had a wage increase over about I think it was roughly also about €30 million, €32 million.

And we did balance sheet now as I just mentioned some minutes ago, also something between €30 million and €35 million. From where does this come, this is of course coming that the GEA still has rather a workforce which is rather in the high cost countries, means Western Europe, North America, etcetera. And some of those issues will be addressed in the so called global manufacturing footprint. And of course, it is in our freedom if we believe that we are in other times we of course do not have to do this wage increase in certain countries for certain categories of employee its mandatory because of the union or workers counsel's agreement.

But then besides that it's quite a lot of freedom. But I think it's a fair approach we are taking here to what's our employee. And I think if we would have squeezed it down, it could have also be in the order of only €25 million. But we said we follow the principles and recommendations of the different country union's etcetera.

Sven Weier

Okay. Can just follow-up on my first point regarding the cancellations. I think in Q3 you also said I guess that some of your dairy clients were uncertain if they still needed the equipment and maybe also bit confused by the regulatory chain as in China and the instant formula and you also mentioned I think you consumer habits. I mean, do you feel that your clients now act more with more certainty or has that behavior changed to an extent?

Helmut Schmale

Now, I wouldn’t say that. I mean, there is some more clarity now about certain things where we still weren’t out when we have the Q3 call. In general, I would say there is maybe in the meantime it has shifted to some other uncertainties with the change in government in the US. The potential impacts on Mexico, the Brexit, etcetera. So, that also of course is causing that now more due to geopolitics less because of they. That's why we are bit cautious with the sales guidance and ability to convert into sales.

Because if a customer is not completely convinced that he desperately wants to have the end product and is pushing this as much as he can, then for us it's also difficult to generate sales as it was for example in the boom times 2013, '14, when they desperately wanted to have the milk powder or similar diary product. Those times certainly we don’t see in most of the arrays of care, it’s a more regular times and I think some of the uncertainties regarding the dairy investment etcetera, have been cleared.

We are also happy as we announced in the press release to get that good order in New Zealand and you have seen it in New Zealand in a statistics of very much small. It also had a very good order intake again which of course has to do with milk. So, from that point-of-view a bit more clarity. On the other side, unfortunately due to geopolitics we have some more unclarities coming from another side.

Sven Weier

Thank you, understood.

Operator

We will now take the next question from Max Yates from Credit Suisse.

Max Yates

Hi, thank you. Just my first question is on this cash flow guidance. So, if I look at your EBITDA guidance versus what you have reported it looks like about 150 basis points increase in EBITDA margin year-over-year roughly but your cash flow guidance is down 50 basis points. So, the cash flow driver margin and CapEx should be broadly flat at 2%. So, I am just wondering what else is going on, why you think given you have a task force in your working capital that you are implying another working capital outflow in 2017.

Helmut Schmale

Yes. That's what I try to elaborate on is that first of all the average working capital last year was still on a level of €650 million only and in the cash flow driver margin the change in average working capital from year-to-year is included. As we are having now a starting point of some €750 million plus a year in backstream of let's say €80 million to €100 million, that then is a starting point of substantial more than €800 million of working capital to be managed on opposed to the average working capital of 650 which we had last year. And that's due to certain channel rate and it's some time until we get that really managed downwards in 10s, I have taken a cost approach here on how much we can achieve as an average for the year.

Max Yates

Okay. And then just I mean just secondly on CapEx guidance. I can see the sort of a the mention of additional CapEx for strategic projects is around 1%. Could you just explain a little bit what you're spending on there and what that's for?

Helmut Schmale

Yes. That is the composition of several elements. One it will start to come from global manufacturing footprint to concentrate on a fewer sides more production capacity and made it more flexible. The production more multi-purpose. The other thing is we are going to invest into a deep platform be it for CRM systems which we are already have started, be it for highly professional recorded internally one way of finance reporting system but also for the oneGEA engineering platforms to have for all the engineers for example in the applications and common platforms for IT.

So, those are some of the things which we will invest in the future because now as we have to oneGEA it makes sense as we are not any more organized among the 200 or 300 different entities but rather by global worldwide functions we now invest into making more efficient and more professional these function and that will be part of a higher CapEx than normal. You may remember that in usual times we have a CapEx level of 1.6% to 2% that's what we had in the past. From time-to-time we do have to invest as we did some years ago when we renovated the complete site for our separation production in early and we built up the large factory in China where the CapEx for one or two years went up to levels of 3% or even higher. Now we do see in our near future that we will invest into mainly I would call it IT and software platforms.

Max Yates

Okay. Just my second question is on the procurement savings. Obviously, you talked about that at the Capital Market Day. Should we expect any benefit from procurement savings coming into 2017 or is that more likely to come in 2018 and '19?

Helmut Schmale

There will be some impact, else wise we could not follow these wage increase. But that has been factored in our guidance.

Max Yates

Okay. And just the final one is on your food business I mean if I look at the percentage of orders of that now it accounts for sort of 27%, it's obviously a big step up from where we were last year and implies kind of very strong growth rates. How come can we get confident that this business sort of having had a very strong 2016 growing at 30% that it went on into a decline next year?

Helmut Schmale

Well, it will not be a decline, it will continue to grow. That's what we see from today's point-of-view. But we also explained that they were also in that food business some special let's call it a mini cycle that for example the coffee business which is cyclical and we were in a good situation last year that we got some actually we harvested a lot of this coffee cycle and that is not repeating every year.

So, but with the acquisitions we did also in the food application which Imaforni and Comas, we hope that and they are growing that we will get some further growth from there. So, I don't see a repetition from this incredible growth we did see in 2016 but it will I don't believe it will be a real decline, besides I must emphasis this coffee thing because that's kind of I wouldn't call it one off it's a very positive thing but this coffee cycles they do repeat themselves only every three to five years and we did see one of this up work cycles last year.

I think we took a maximum of orders and we will not see them again in 2017. So, beside that coffee business I am quite confident that the food business from today's point-of-view we will be able to make it continuously growing.

Max Yates

Could you just very quickly give us a sense of how big that coffee business is?

Helmut Schmale

I would not like to disclose this because we are here in competition with other people and I would not like to disclose below the application. I mean, the size of the application food you see that that going below into specifics of coffee I would not like to and I hope you have an understanding for that.

Max Yates

Okay. Thank you, very much.

Operator

We will now take the next question from Peter Reilly from Jefferies.

Peter Reilly

Good afternoon. I have got three questions please. Firstly, on your working capital on the working capital bridge you got a outflow for trade receivables of a 148 million. Now organic growth was negative last year. It's quite a big outflow and this is ignoring the pace you made movement. What's in the 148? Is that a you did it bring things later in expanse of that for you have also bank lots to collect, is it customers not paying, are there some receivables you got to write off because you have had a vast profit last year. So, maybe you could help us understand what is being such a big outflow on trade receivables?

Secondly, on the manufacturing footprint program I know its early days but are you planning anything major this year in terms of charges or programs or investments just trying to get an understanding about whether '17 is a consolidation year, whether it's going to be pushing ahead with the NSP plan. And then lastly, looking at China. China is being steadily shrinking as a percentage of sales over the last five years, it ends at 8% now by order intake. Where are we in China? And is there still a loss of concern about the quality and safety of food and say we got great middle class and lots of other positive driver. So, do you think China can actually start to come back to you and be a positive story again?

Juerg Oleas

Shall I start with trades receivables? Yes, thanks for the question. The trade's receivable, that's from my point-of-view, issue of the processes which we have in place. You need to understand that this involves all departments here in the organization. So, it involves sales, operations, accounting and shared services. In our transition to the new organizational setup, the exact processes we found out are definitively different in almost all of the sites which we have.

So, this is one element which made things difficult for us to really transition that to the shared service operation as of course shared service are looking for harmonized processes which we as GEA actual need to develop and we have not readily available but we have taken lift and shift approach. We move to the shared service operations and now we need to harmonize and install these structure and reorganize our processes around on the trade's receivable collection. Actually, the increase here and the missing inflow from trade receivables though does not imply any out of range or higher compared to previous years write down of any trade receivables in our balance sheet.

Helmut Schmale

Yes. Coming to China, your last question of course we were not happy to see that in the last year. We did not have mutual contribution from the order intake from China. It was negative development but we did get some signs later in Q4 that which makes us more optimistic in 2017. So, we truly hope that 2017 is going to be a better order intake than in 2016 which was depressed for many reasons as we said the uncertainty of consolidation in the infant formula things. We still we stock unknown stock levels of milk powder etcetera.

So, we do see the potential that China is going to be again back on the growth rate for GEA in 2017. When it comes to the global manufacturing footprint, we don't see foresee a major negative one off this year. We will start or we have already started with the program which we presented to you and the Capital Market Day back in October. But the major changes and realignments or if needed closing to factories that would then be as of 2018 and forward but it does not mean that we are this year only analyzing we are already taking actions to plan because those things have to be carefully planned and do some smaller issues which can be solved quicker.

Peter Reilly

Thank you. If I could just come back on the issue of the trade receivables, and so as to lay with the point but you have got quite cautious casually guidance for '17 and when you talk about foremost of the shared service centers, they sound to me to be more transitional issues that should hopefully correct or normalize in 2017. So, are you going to end up with a structurally high level of DSOs and at the end of this process or do you see some scope to actually in effect pull back some of the 148 as you get the price processes and procedures under control?

Juerg Oleas

Definitively we would like to claw back on this level of receivables and it's a just a matter of timing throughout the year, so how much is seen picked on the average working capital. And I would like to add that overall expiration level which we set for got working capital to be around let's say at a 12% corridor, that hasn't changed. So, it's for me it's a transitional issue which we need just to fix.

Peter Reilly

Okay. Thank you for the elaboration, that's very helpful.

Operator

We will now take the next question from Gianmarco Bonacina from Equita.

Gianmarco Bonacina

Yes, good afternoon. A couple of questions, please. First one about the Fit for 2020 savings. If you can are able to tell us what was the figure realized the in 2016 and how much you will realize in 2017 if I require while total amount should be around 125 million. Then the second question, in the press release you mention somewhere that food producers are more cautious than they were in 2016. I am just wondering to which end market you are referring and if this is for dairy because clearly we saw in the last months quite I mean an improvement in the dairy prices. So, if you can elaborate little bit on these statements. Thank you.

Helmut Schmale

Yes. Let me start with the Fit for 2020 savings. As Juerg Oleas already elaborated on Fit for 2020 savings on our sector and in our new guidance and I would like to reframe to the slice that into pieces and parts and at the end of the day we will achieve about the range which we were targeting for. So, it will be around €125 million which then finally will be achieved fully in the year 2017 but might affect that we already had positive impact in '15 and '16. So, at the end of the day, the Fit for 2020 initiative in that sense is closed and concluded and we have achieved or will achieve what we were aiming for.

Juerg Oleas

Yes, regarding certain food producers, I would not like to name some brands but you may know them. During Q3 and Q4, some of the major food producers, they were more cautious on their outlooks when it comes to organic growth and that of course makes us also bit cautious. To see on the other side, we have the emerging markets as which we did see also in 2016 which we are now going to push even more because we see that there is a lot of potential there for local producers. The smaller food producers which are maybe not so global to approach them with our new oneGEA organization and it has already proven to be successful.

So, we see some positives from there but we also realize as we said in the press release that some of the major global food producers or processes they have indicated to be a bit more caution as for short term future, means 2017.

Gianmarco Bonacina

Okay. Maybe just a quick follow-up regarding the item which you're seeing kind of one offering in 2016 Ebitda which we can add back to get more correct base to make the bridge for 2017. Should we say that out of the bridge you presented in Q3, the real one offer are about 20 million of provisions which are let's say you're really one off.

Helmut Schmale

I mean, if you break down the one offs which we had for the year 2016, a lot of them have to do of course if the transition in to the shared service operation and of course if the relevant consulting cost related to that and other issues which the components saw individually what they have seen as one offs which implementing the last steps so to say of our new oneGEA organization. And all in all that then made up for the €65 million, so you see that these things largely are really one offs as we speak.

Operator

We now move to our next question from Sebastian Growe from Commerzbank. Please go ahead.

Sebastian Growe

Yes, good afternoon gentleman. Also, three questions from my side. The first one is on solutions. Can you just remind us of the impact of project that slipped from fiscal '16 into '17? I just want to get a better understanding of how much of a catch-up effect do you expect for the year '17? And then also come back to the margin quality and the backlog at solutions. If I remember correctly, you said on the Q3 call that margins were up 100 basis points year-on-year. Is it still the case and if so how long does it take to execute the old lower margin project that to what extent we should be prepared for drag in the say first half or so of the year 2017? And finally, can you also give us a sense of margins overall, are pretty stable from the elevated level or if there has been any change in the meantime.

And secondly on the share buyback, can you give us thought behind why you opted for the volume of €450 million, is it that to assume eventually that you want to remain flexible with regard to M&A and if so can you generate a comment on your pipeline with regard to M&A and if we should be prepared eventually to see some modules coming through over the course of the year. And then lastly, maybe rather up question on staff turnover, can you give us a sense if there has been several employees leaving the company over the last quarter and after the hiccups you did see in the year 2016 and maybe just share with us if you have seen any tangible difference to what happened in the past in terms of staff turnover. Thank you.

Juerg Oleas

Yes. Coming to this is that are solutions margin, the opening backlog for 2017 margin in solutions, everything included is higher than it was a year ago. So, the starting point is better than a year ago. Then you asked from the somewhat lower margin projects which we had here in 2016. They carried over into this year, of course certainly as you know most of these projects they have been executing duration of one and half up to two years. So, we will still have some of that into this year but it will gradually be washed out.

We also have we discussed in the conference call of Q3, we started to increase the provisions or the contingencies which at the end of the day means increasing the prices or the projects that will be on the positive side for this year. So, all-in-all we will see a good gross margin improvement for solutions overall in 2017. Regarding the fluctuation, we so far I am not aware of any special development there. We did an employee survey towards the end of the year to detect how the mood is of the employees around the world after this quiet stringent program we went through and all of them went through.

So, the mood of course is not as good as it was before, the last employee as a benchmark we did two and half years ago before we entered into the Fit for 2020 program, it is quite different. We have seen that in general, the mood is not bad, but it has deteriorated in certain areas. For example, in do -- would I recommend this company to stay etcetera, but I think in year that 2016 with such a massive change with a massive reduction of std. It is understandable. There is also pattern which is not a surprise that we see the managers have -- to 1000 managers of GEA which also participated in their pre-survey.

It gave their satisfaction overall and much higher rating which is an indicating for us that is the change. There is a change curve across the organizations through this introduction of oneGEA and Fit for 2020 the managers they have embraced this and now it's our task to embrace also the other layers. But another way that we have to make sort of the fluctuation or in the management levels nor at the employee level.

Helmut Schmale

Yes. Then let me comment on the share buyback. Yes, thanks for your question there. We have of course done diligent review of cash attend and future cash in and outflow and we have also done a kind of stress test and stress scenario in order to develop a number where we are comfortable with, that we would not risk any future freedom for operations for GEA if we are using that for buybacks and of course as you have outlined at the beginning of the question and answers. Obviously, got to these strategic projects which we have a head of our sales production procurement or investment in organic of R&D, digitalization, ERP systems.

For all of that we have cross results, some buckets, some money in order to be able to finance that and of course there remains a good M&A pipeline that we have also made an assumption how much it would be in terms of free cash flow which we may use for that. And that all concluded then that we would have residual cash attempt which allows us to do a share buyback with a value of €450 million which would leave the company with a net sale freedom and would not at the same time would offer decent share buyback which is in the range of 6%.

Sebastian Growe

Okay, understood. And if I may quickly come back to the solutions area, then on the sale slippage. Can you just give us an idea how much of project do you expect to come up again then in 2017 which were deferred?

Juerg Oleas

Sorry, projects, number of projects which might be differed?

Helmut Schmale

Yes. That is the volume which is was slipping based them on that which we gave after or within the Q3 call which is then slipping over into next year because we couldn't executive them as we were expecting them. But this is all included in the new guidance of business air solution, so that if in our guidance range and the moderate growth which we expect.

Sebastian Growe

Okay, that's it. Thank you.

Operator

We will now take our next question from Arash Roshan Zamir from Warburg Research. Please go ahead.

Arash Zamir

Yes, good afternoon. I have three questions if I may. The first one on your one-offs and especially on the one-offs that booked in Q4. You already mentioned some provisioning, however, I was wondering if you could provide a detailed split of the €37 million one-offs booked in Q4 and also looking to 2017, what shall we expect in terms of one-offs? If you quantify the amount of one-offs you expect from next year and also what do you exactly mean with respect to those strategic projects in 2017?

And then secondly, on your mid-term targets looking beyond 2017 and I wonder if you should not assume annual growth of 4% to 6% which has been your target over the last couple of years, however you didn't really live up to that top line growth. Is there any risk that you won't be able to achieve the high end of your EBIT margin guidance of 13% to 16%? So, how much of the upper end of the range is actually linked to top line growth of 4% to 6% and may be the last one on your dividend and I assume I guess it will be fair to assume that you won't increase your dividend for 2016 and so it will probably stay at €0.80. Thanks.

Helmut Schmale

Yes. Let me talk with the last question regarding the dividend. We have actually two guidance's out there for the dividend. This is range of 40% to 50% of net profit or EPS and the other one is that we have out any unforeseeable need, we will not go below previous year levels in Euro Cent. But we do not yet have the exact numbers for the EPS because we are still missing the details on the tax. At this time point in time, on the other side I also can tell you that GEA is not in any special need. So, I can well see it that we will pay-out or will recommend dividend to the HM which is previously at levels, means the 80%.

However, the 80% our first estimations indicate that that is about may be even slightly above the range of 14% to 15% of net profit.

Juerg Oleas

€0.80 of dividend, is that percentage.

Helmut Schmale

No, sorry, €0.80. Which can be slightly above the 50% guidance we gave, but also that's why I mentioned the second part of the guidance that without any need, we will not see any reason to go beyond the €0.80.

Juerg Oleas

Yes, we forgot the one-offs, we have a central accounting guideline for that, how one-offs are to be recorded. Most of that or the big chunk of that about €30 million annually essentially from the headquarter and then of course as I said previously all to the components at the one-offs, of course a lot of that is related to transition to the shared services and into consulting expenses around that and of course partially also related to payments to employees. And this all then is the combination up to the €65 million which you find in annual accounts. And this gives you a flavor of what is included there and as I said we have a central accounting guideline in place on how to record it and allocate this.

Then mid-term target?

Helmut Schmale

Yes, you asked the question about the probability to reach the high margin that is of course very much related to the volume to growth and if the growth would be at in upper end let say, in the area of 5% to 6% then of course we have tailwind for the margin, then of course that depends on many other things. As I mentioned several times already, it has to do with a portfolio mix of how much we do see growth in the basis area solutions and parts of it and how much we do see in the basis areas of equipment and parts of it and recall it's not a steady stay situation, it depends very much on the product mix.

However, I also must say that looking forward and if you look at the numbers which were published yesterday but the VDMA which is the German association of mechanical engineering industries. They reported a negative order intake organically from 15 to 16 of minus 2%, we are here organically between plus 1% and 2%. So, the geopolitics and the industries out there do not make us believe that we will have lot of tailwind or and let's say an upper end of the growth and with that a better margin.

Arash Zamir

Understood. Maybe if you could just elaborate on one-offs expect for 2017, a rough estimate.

Helmut Schmale

This is something where I cannot really talk about already now as these new projects as you highlighting them just a couple of months before they are still in the infancy. So, it's too early to for me to give you a guidance. We will tell you as time will go on what we are targeting for this year and what are we really executing this year. I mean whatever we do here in terms of new strategic projects, it needs to also fits into the loading of your organization, so what the organization can really swallow. And this implies a certain timing on which we are still working.

Arash Zamir

Okay, great. And maybe just a base straight forward question. I just noticed that your reported EBIT figure for the full-year 2016, how much is it because I have on the presentation 387 million and the press release from this morning 384 million, just to get my motor right.

Helmut Schmale

It's 387 million.

Arash Zamir

Okay, perfect. Thanks.

Helmut Schmale

It was a typo, sorry for that.

Arash Zamir

Yes, no worries.

Operator

We will now take the next question from Michael Kaloghiros from Bank of America.

Michael Kaloghiros

Yes. Hi, good afternoon. Thanks for taking my question. Maybe just sort of to summarize your different comments on demand. If I look back at the press release you say uncertainty and some food producers are cutting their forecast. On the other hand, I guess, taking the dairy farming, oil and gas, maybe peeking, what's the overall view for demand in your respective markets in 2017 compared to 2016 as your best guess for the moment please.

Juerg Oleas

Yes. From today's point-of-view or when we did make the budget towards to our sale of the year, I would see talking in broad industries that in milk and dairy farming because of the massive decline we did see specially towards the second part of last year with some lights on the horizon then in the last month in December. We do see slight improves which is of course not a very exciting thing because we are talking now coming from a very low level. So, you have to be aware of that. Then in the industry of in dairy in general which includes of course the MDF we see positive development in beverage, we do see also a positive development in food.

We do see excluding the coffee cycle which I just commented a minute ago, we do see slight positive development despite that we have very strong growth. Then in chemical, we do see positive development in pharma also, and in utilities. If you would want to know which of those industries we believe is growing the most, it's not one particular industry. I am happy to see that basically all of those industries that's our people has aligned in the budget process etcetera do grow more-or-less in the same pace with one remark about the food industry and this coffee cycle which will not be repeated in 2017.

Then the service basis if we take that as separate business and we always have to talk about that as service business, we also see a good positive growth in that. Why are we still seeing in most of these industries a positive growth despite that comment, is that we do see the potential with the new oneGEA that we can penetrate markets where maybe the global economy is not growing very exciting but with the new business model of GEA we can get better penetration and harvest more of the markets means get market shares from things we may have not addressed in the past.

Michael Kaloghiros

Understood, thank you. Can I ask on the problematic projects, inefficiencies that you had last year, that kind of 565 million headwind. I think you clearly said that there will be improvement but still a bit of drag in 2017. Just should we expect then to have a like a clear line and then none of these inefficiencies to occur again in '18? Is it the end of this issues in 2017? And also, just on your comments of the pricing and contingency that you taking at the moment in the market, how should we look at that compared to maybe the market in turn of our environment and the pricing environment that you were thinking maybe 2015, 2014 before, let's say before you are booking these orders that were delivered in backlog last year and ending of this year?

Juerg Oleas

Yes. I mean we will always have inefficiencies as any every company has that here and there. But from the issues we discussed in the Q3 quarter to come to back of normal levels of efficiencies or inefficiencies, I would say we will work hard to end up this in 2017 and to try to avoid as much as we can that we will have the first drag into 2018. If some issues would still drag into 2018, I think they should be then really a minimum. Sorry, could you repeat your second question?

Michael Kaloghiros

Yes. Just to understand, you mentioned better pricing I guess few years ago when you are then kind of like no dairy boom 2011 '12 maybe the pricing was very strong and then I guess '13, '14 especially are probably normalized. '15 probably was a bit weaker and that's why here those issues last year. The pricing of the orders you are booking now, how should we compare them to is it the pricing of two three years ago, is it low, is it a bit higher, can you just give us a sense of the relative pricing of your orders at the moment compared to these?

Juerg Oleas

I think it's more normal. It's not very good but not also very bad. I think we are back to a level talking about I mean then you have always differences in the industries. We had encountered quite a pressure on breweries last year pricing pressure. But talking in the totality of the products and applications of GEA, I would say the office we say the quotations we are doing today are back to a normal level of pricing as we had it before the boom times and before the times where we had to fight for orders.

Michael Kaloghiros

Understood. Last one maybe on cash flow. I think when you guided, your relative guidance at the Q3, you pointed towards the a bit that you actually made in for the cash flow driver since you are talking about 10 and you did 9.5. What happened in Q4 that affected your cash, was it like customer issue, was it your own issue given the shared services issue was already there when you reported to Q3. Can you just give us anything on that?

Helmut Schmale

Yes, it is exactly as you described. So, the ever growing trade receivables volume is something which is still is not under control and needs to be addressed. And contrary to what we had in the past, this year we have not that particular pattern that the working capital was improving so much at GEA and as it has done in the past. Also, related to these issues of the processes in our finance and operational organization how to handle and how to execute this and this accumulated as well in the cash flow driver being on only 9.5'ish and not 10%. So, around 10% as least as we said in the modified guidance. But it is then also the difficulty as a starting point for the new financial year that we would love to have to be there, to have been there little bit better.

Michael Kaloghiros

That makes sense. And just looking forward I think you mentioned the strategic investments in 2017, I mean can you maybe give us a sense maybe not what you're going to spend in '17 precisely but within your budget for those strategic investments you are going to do for the next few years, maybe the kind of like and touch the estimate of that. And then back to your comments on the task force working on improving the working capital. You got an initial feedback on the kind of like timing towards getting back to the working capital corridor in terms of quarters, years.

Helmut Schmale

If I start from the end with the working capital, that initiative started now and so far I got the first reports where are the issues and based on the granularity of organization which in the past was run by more than 200 legal entities of course then also having all different processes and structures, so we now really need to address all of these individually and harmonize the process and that is very detailed and long lasting work which you have to do there. However, it's worth the effort because also in nine side I will say that is without any alternative.

Now, the way we were organized previously, that level of inefficiencies, our clients would know that they would be prepared to pay for this and this is why we need to optimize our structures and if you are dealing then within the shared service partner, they of course would are aiming for well-organized procedures in order to duplicate and replicate them and not having individual solutions for all of the larger size and ERP systems. So, we so far made a blue print of what we have attend here and which regions are concerned, which large sides are concerned. Now, we slice it individually down with targets how to work that down over the year, but it's too early to give more details on that.

Michael Kaloghiros

Okay.

Juerg Oleas

Yes. And regarding your question about the price for all these initiatives, we are here not in a position yet to pack a real amount behind it because competition of several things and it's also a question of prioritization as Helmut also said it some minutes ago that we will not be able to do all the things at the same time. First of all we have to stabilize the organization. We are doing this, we have to fix a couple of things as we just mentioned during this call and then we will take on the next steps. So, I would ask for your patience that when we are then ready, we will certainly put some prices for investments and the cash outs related to that for this future projects.

Michael Kaloghiros

Thank you.

Operator

We will now take the next question from Sebastian Ubert from Soc Gen. Please go ahead.

Sebastian Ubert

Yes, good afternoon. Thanks for taking my question. One follow-up question to the share buyback program. You talked about that you have done the cash snapshot analysis which gives you a search and residual cash amount end of this year allowing you this 450 million to spend on share buybacks. I guess this does not include any further re-leveraging of the group that you have indicated at the CMD?

Helmut Schmale

Yes, it includes the re-leveraging of the group to the maximum amount we could afford based on the rating to keep it in the investment at 2.5 time EBITDA and actually we have not measured the €450 million over the actual cash flow situation. But looking forward to the end of the year 2017, knowing of all the detailed elements of our how we will spend money for whereas initiatives you are going to do and what the initiatives and operational initiatives and as well keeping a little bit of a strategic reserve for fluctuations. What's ample work and or risk which we might see from the geopolitical environment, so it was more based on the forward looking approach?

Sebastian Ubert

Okay, thank you.

Operator

We will now take the next question from Ben Maslen from Morgan Stanley.

Ben Maslen

Yes, thank you. Good afternoon, everyone. Three questions, please. Firstly, just on the pension, can you give us what you think the expected yearend balance will be and if you have any benefit from the move in bond deals. On the EBITDA guidance, could you just clarify, sort of made a mistake what you mean by adjusted for strategic projects. And I can see how those projects impact the cash flow but what is the impact that you've taken into account in terms of EBITDA. And then finally, obviously the catch guidance at the end of last year was surprise for a lot of people.

I know GEA is a complex group. So, have you put in place any extra structures or controls over the last few months to kind of prevent these problems happening again either around costs so project pricing and so forth. Thank you.

Helmut Schmale

So maybe I will take the first question which is the question with regard to the net amount for pension liabilities. And so the net amount will be around €70 million that is an increase of about €30 million compared with last year. Unfortunately I do not have yet the balance sheet which is fully finalized as yet, but this is about the right number.

Juerg Oleas

Yes, regarding the EBITDA guidance adjustment is that as I just mentioned, we did not -- of course we always have here and there [smaller restrictions] and that is part of the guidance, but extraordinary things, so if we would due to the manufacturing footprint already have to take provision for a certain major step or for the other improvement project, then what we are saying is that’s not included.

Then regarding whether we have some securities in there to avoid again a profit warning as we unfortunately had to do it in the year 2016, yes of course we have strengthened our finance organization. We have, we are improving the financial reporting etcetra. So we have taken a couple of measures which I would call to improve even more so called early warning indicators, but I can really say here that in the last year when we did these things and with the pattern of year-end developments etcetera, we couldn't see that this negative development until then we finally got the September numbers and we became aware that the last quarter is not going to be as expected.

And as we now did see when we have now the final results, it unfortunately proved right. But we are working on this to continuously as we always have to do improve, monitoring systems.

Ben Maslen

Thank you very much. Thank you.

Operator

[Operator Instructions] We'll now take our next question from Lars Brorson from Barclays.

Lars Brorson

Yes, hi, Juerg. Hi Helmut. A couple of questions from me, and they are now while – but I’m still not sure I really understand particularly your EBITDA bridge for 2017 and also accounts receivables. I am sorry to be [believe] at a point, but I do think it's important, you were kind enough in Q3 to provide us for the year-over-year EBIT bridge or EBITDA bridge for 2016, we don't have one for 2017. If my starting point is 566 of EBITDA in 2016 and [coldfit] for 2020 delivering €40 million incremental cost savings in 2017 and obviously we're getting to this €30 million to €35 million I think you have talked about in wage increases, and also of course the benefit from not having the technology cost in 2017 that's a €20 million benefit year-over-year that gets me to €600 million versus your midpoint of the guidance €645 million.

Now, what I'm trying to understand is what gets me to the midpoint, the additional 50 between revenue growth and additional savings i.e. from procurement; could you help me out with that?

Helmut Schmale

Yes, well of course is then making the [verge] to the 620 to talk about the lower end of your bridge. If I follow your logic there then of course we will less inefficiencies as we set and then the remainder between the 620 and the 670 is largely depending on how much volume we will see and how much more on inefficiencies we can cancel out over the year. So this is what it is.

Lars Brorson

So less inefficiencies when you talk about ramp up cost in Q3, the €55 million we talk about in the bridge, does that mean that we have less incremental obviously that won't be €55 million in 2017, so is it a benefit of having less of an incremental negative around ramp up cost that we talk about where you talk less inefficiencies.

Helmut Schmale

That's what it is, yes.

Lars Brorson

Okay. And you were not able to help us with the procurement savings that you talk about coming through this year?

Juerg Oleas

We said, we are not giving detailed bridge in a way that we are now flashing out here in the procurement savings and other initiative. The reason for that simply is that we are planning here in central governed approach, but also confirms if our regional and VA and product group management teams. And we are targeting here gross margins for the individual product groups and application which we feel comfortable with, and this is why that includes then all of the potentials up and downs in the margins and we see that in the – even in market circumstances that the target range of 620 to 670 which we provided you with is application where we feel comfortable with.

Lars Brorson

And sorry, just one final point on the EBItda operation, then I will move on. Just on that less inefficiencies, is that the €55 million ramp up cost, none of that occurs in 2017, nice thought we talked at Q3 about some of those cost continuing to recur this year.

Helmut Schmale

Yes, it's a question how much will remain and how much we can already wipe out in the year 2017. That is one of a game changer of where we will end up with all the guidance at the end of the year.

Juerg Oleas

And also the way how the organization makes the budget is of course we cross check those thing with what we had on hand on Q3 because when we made the budget of course we did not yet have the final numbers of 2016. But the way our organization and our manages do the budget is that of course they discuss with the [country] managers, the top lines, the order intake and all the things and then they agree at a certain product lines and then certain application lines, country by country new equipment or service they agree on certain levels.

And then coming to the profitability, what they do is that they also negotiate amongst themselves and present a propose to us, then an increase in the gross margin which is different application by application, product line by product line, and then if you sum that all of us, you’ll come to the two business areas and then finally to GEA.

So it is a budget which has its fundament in aligned country by country, product by product, new equipment and service these two business always separate and then business solutions and equipment. The top lines and then the agreed improvement in the gross margin.

Then of course we cross check that whether it makes sense with what we have seen in 2016 etcetera and we also discuss with our manager, the ups and downs upwards the additional potential may be supplied chain etcetera, but also downward risks, maybe because of volume or pricing pressure and then we fix a range and that's principally in the range which we are guiding here.

So the budget is not only made by using a bridge from 2016 or if [Indiscernible] and then look how much of the so called inefficiencies are carrying into 2017, so the budget is fundamentally made by an agreed gross margin with the application managers or the product managers. And as agreed, top line volume between the application order product managers and the country organization.

And now it's a big difficult to say so much of that gross margin improvement comes from less efficiency or from maybe so much less efficiency that may be so much supply management improvement. It is these numbers which the organization has agreed and committed and on top of that we then do some risks scenarios upwards and downwards and that gives us the range.

Lars Brorson

That's understood. Secondly if I can just ask to account receivable, I appreciate your bridge on slide 18, so thanks for that. I have to say, I am still struggling a little bit with what I think the conclusions are for 2017. I mean, if at the end of 2016 receivable stand at €1.4 billion that is 31% of LTM sales that's a thousand basis points higher than where you're running in 2015.

Again, if my math is right, if your receivables is the €150 million negative delta in the working capital which is implied in your cash flow driver target that then moved to the mid 30s, that is, and again you've been asked a few times now on this call around structural deterioration around your receivables. I guess it is a recurring question, is that, some of it can possibly be explained by inefficiencies in the receivables collection. But I guess my question is what have you done or are you doing to ensure that quality receivables is not deteriorating and you are able to collect these.

Helmut Schmale

Thanks for your question. I think maybe we need to wipe out a little bit of a misunderstanding. So if you take the working capital at yearend 2016, the €750 million on that all of working capital, so not only the trade receivable, but also POC inventories and other things, that is a percentage of about 16.7% over sales. So I am not knowing where you are exactly coming from. But that is composed and [berched] between the quarter for 2015 and 2016 as it is displayed here on that graph.

Now assuming that this is a starting point for €750 million of working capital at year end, and we assume we’ll swing back of let’s say for argument sake up to €100 million which we normally see at the beginning of the year then you would have a starting point as an opening balance so to say in the total working capital of €850 for the year.

And then to manage that down, let’s say to an average for the year 2017 of only €730 million would imply that still we need to substantially improve over the €650 million of average working capital which we had throughout the year 2016.

And hence even if we manage decently now the churn rate, the ramp down of our working capital and hence the receivables, that takes some time until the negative impact from the just average number which we can see consider in our case really takes place. So don't forget the working capital in the cash flow driver, is an LTM average not a yearend figure.

Lars Brorson

Okay. Again, and I don't want to belabor the point but my trade receivables, if I add back the €148 million and €124 million on your bridge, trade receivables is ending the year at €1.4 billion. And again your advanced payments are going up. Again, I'm just struggling to understand if that goes back up again in 2017, the trade receivables. That is, if that's the negative built into the working capital which is implied by the cash flow driver target margin that then again, it doesn't look like you're making much of an improvement by what's implied in your target. I guess that's my point

Helmut Schmale

That’s what I tried to explain. Even if we are improving, the starting point is that high that to come down in average, 12 months average for the year 2017 that’s a high ambition which we have in there because we are not in the cash hold driver we are not measuring at year end, the working capital, but throughout the year. And hence I need to take the average of the year and that is what makes it so difficult.

Lars Brorson

Understood. Just a third and final one, more of a bookkeeping for me just on your consolidation and other line outside of your two business area. That's contributing a positive €4.6 million in the quarter. Normally, that's negative and obviously particularly so in Q4, which is seasonally a bigger negative. Why, is there anything unusual in that line? Why is that so positive this quarter?

Helmut Schmale

Now the simple explanation here is by and large that has to do with the new charging model. Because we are charging more out to the operations as we have done in prior years.

Lars Brorson

Okay. That’s great, thanks.

Helmut Schmale

That’s follows the logic of the new organization.

Lars Brorson

Sure, thanks.

Helmut Schmale

And believe it of a currency impact is there as well but by and large it's really the shared service, sorry the charging impact. Thank you.

Operator

We'll now take the next question from Daniel Gleim from MainFirst.

Daniel Gleim

Yes, hello. Thank you for taking my question. Sorry to come back to the non-recurring items in the fourth quarter of 2016. You went over this point quite quickly. Have I understood you correctly that the spike in the non-recurring items, i.e. the delta between the reported EBIT and the operating EBIT, is mainly driven a spike in consulting costs, or what has been the single most important driver of that pick-up?

Helmut Schmale

So there are in fact various elements in there which is not only comes out in [Indiscernible], but many also transitional cost into the shared services. So to make that work, to ramp it up and also to take care for restructuring with regard to our employees, it has to do with work sharing costs related to the transitioning to shared services, so its there’s element which are going in there, but they are all related to the transition to the new organization.

Daniel Gleim

All right thank you. And maybe a second question.

Helmut Schmale

Maybe I add it here for your convenience, the true up of tax and expenses alone in quarter four was €12 million.

Daniel Gleim

That’s very really helpful. Thank you. One more maybe on this topic and the provisions that you have booked for the special project cost of around €20 million, this is all recognized in your operating EBITDA and EBIT numbers, is that correct to assume?

Helmut Schmale

Yes, that’s in the operation to EBITDA.

Daniel Gleim

All right. And maybe one last on the BAS gross margin impact, as you kindly quantified during the Q3 call. Correct me if I am wrong, but the three key drivers of this decline was the pricing, the rotation of personnel within your organization, and union negotiations delaying the process to OneGEA.

If you now talk about this potentially spilling over to 2018, if I understand your comment on the 100 basis points, better pricing in the existing portfolio, plus the 1.5 years and lead period, it looks like pricing is not going to play a role. Also the union negotiations, to my understanding, have been complete. So is the right way to think about this potential spillover to 2018 that this is still the learning curve of people that have been rotated within the organization?

Juerg Oleas

Yes. The so called inefficiencies which we commented in Q3 call has to do with the fact that the organization had to learn to live with lower capacity, means less FTEs, and we then had to realize that especially towards the last quarter the organization required a higher than normal level of attempts as we have commented. And that's what we call one part of the inefficiencies.

Secondly, the people having new functions and new working modes in certain areas, there was an underestimation of potential negative impact of that. That's gradually to go and wash out into 2017. I will not exclude that we will not see anything of that anymore in 2018, but we will work hard to fix all these things and to make the organization as efficient as plan it in the target sizing of the new oneGEA during 2017.

Daniel Gleim

Okay. Thank you very much for that one. On your networking capital, given that you elaborated it will normalize in 2017 we are really at the peak level at the moment, or is this something to even go up higher in terms of net working capital in the first half of 2017?

Juerg Oleas

In the first, historically we almost have seen first two months that we have an increase, further increase in working capital. I will not exclude that also for this year 2017, and this is why I said we need to add something on the €750 million which might be a negative swing back, which will then ramp up in the beginning of a year and which is then the real starting line to bring down the working capital again.

Daniel Gleim

Understood. Thank you very much. Maybe one last question, given the experience you made in this year, have you taken a more conservative stance in articulating your guidance this year, i.e. factoring in more headroom in your numbers, especially on the profitability line.

Helmut Schmale

I am -- if I may comment here, that is best view we have today. And this is why we gave that guidance although the target range as we do not finally know where, how much the volume will finally go and how much of these inefficiencies we get out of the organization. So that is the range where we are feeling comfortable.

Daniel Gleim

All right. Thank you very much.

Operator

We will now take the next question from Peter Rothenaicher from Baader Bank.

Peter Rothenaicher

Yes, hello gentlemen. What is your definition of moderate sales growth? Is it fair to assume a range of 3% to 5%. And on the other hand you mentioned that the industry environments for most of the industries and your expectations here on demand looks already favorable.

Then would you expect here in order intake also some moderate increase versus the previous year? Then if you look at the seasonality in 2017, so can we expect that the problems will hopefully then be solved to a maturity in the first half of the year? This means that results may be weaker in the first half of the year in tendency, and then we should see some improvement and better trends for the second half?

Another question regarding your acquisition pipeline, can you give comment? Do you expect the closing of some further acquisitions in the near future. And my last question on your today's-- on overall organic sales growth potential for the longer term, 4% to 6% you mentioned in your strategic overview. Would you today here set another, perhaps a lower growth figure?

Juerg Oleas

Coming back to your first question about the moderate growth of our guidance, it’s organically anything between plus 1% and 4%. Then you asked about order intake whether that also even though we don't guide but from today's point of view we do foresee also moderate growth in order intake however that is this was not in the last year if not part of our guidance.

The seasonality of 2017, the seasonality in general is an issue at GEA which we are not happy with, because the seasonality for years now has shown us that over proportional level of phase and then even more over proportional level of earnings is coming towards the end of the year and it would be easier for the predictability of the company to linearize that more, but we have many other things at hand if you just heard, so we do not have now a project in mind to linearize GEA, but one day in the future we will have to address that and I am absolutely convinced it is possible.

It's deeply implanted culture of care to have that seasonality which is not to a great extent not imposed by the outside. It's a cultural behavior within GEA. When it comes to the M&A pipeline, we cannot guarantee or guide to make one or two acquisitions this year, but I personally am confident that we will see acquisitions this year, but we as we already it several times we are very very prudent when it comes to acquisitions because it is quite risky process to make an acquisition, to pick the right one and then to do the right integration.

The last two, we did the comas, and Imafornia making us very happy and are confirming us that it is worth to have patience and to look and to negotiate and to talk a long time with the sellers before then making the final decision on go or no go for acquisition.

Then you asked about the long term growth beyond now the short term view, and yes it's still our ambition that we can grow at the minimum phase wise of 4%. As I just mentioned also in one of the other answers of course it's difficult to grow the 4% when the market for example like VDMA in Germany published yesterday, its’ going backward, minus 2% but coming back to normal kinds of growth in the industries in general, comparable to ours, we are striving for that, and of course that is assuming that no major customer industry falls even if the global economy is doing okay but if one specific cycle is downward which is relevant for GEA as we did see it now in the last year in the milk and dairy farming. Of course it's difficult to achieve those goals.

So, it is possible to grow but it of course depends on certain things and we are striving for that and we do believe that GEA is good to grow faster than with our portfolio, faster than let's say a peer group or comparable industries. But then, I also must say and I would like to emphasize that once again that we are not certain what these geopolitical things are going to bring also to GEA. We have the potential custom duties for US sector imports. We may have some negative implications on Mexico, a country which made us extremely happy in the last one and half year when it came to top line.

So, we have to see what is the potential impact into Mexico. Then we have the Brexit which made the currency quite weak which then make things for investors for British plants much more expensive as they have to pay that in Euros and then I don't have to mention other things. We have a couple of critical elections coming up here in Germany, that's also around us and in some other parts of the world. So, I would say that in general the geopolitical situation and we cannot sneak out of that. It's not as good as it was in 2014 and 2015.

Peter Rothenaicher

Thank you. Last question for clarification, then charges related to Fit for 2020 are finalized and what is to come is only original production footprint. Is it correct?

Juerg Oleas

Yes, the charges are finalized. Of course cash outs will come from the provisions of those Fit for 2020 but the charges are finalized.

Peter Rothenaicher

Okay, thank you.

Operator

We will not take our next question from Max Yates from Credit Suisse.

Max Yates

Hi, thank you. Just a quick follow-up. On your balance, there was an announcement regarding balance quarter, and quarter that you would be entering sort of this market and you had a product there. Could you talk a little bit about sort of how much is the market share you expect to get from this market? How big do you think the opportunity is for GEA?

Helmut Schmale

It's in the area of marine business. It's as you see from the total competitions it's a rather small. We have technologies there, so for us that’s also good news. But at the end of the day in that application our product group it can be a good up swing but for the totality of GEA it's not going to be very relevant positive impact.

Max Yates

Okay, thank you.

Operator

As there are no further questions in the queue I will hand the call back over to your host for any additional or closing remarks.

Juerg Oleas

Yes. So, I would like to conclude this Q4 call with the preliminary numbers and we were pleased to answer your questions. I hope that you got the answers which you wanted to ask in this call. And as usual our team is of course always ready to answer the questions beyond this. And we as I also said here last year, we will try very much to make GEA better GEA in 2017 and to avoid the set back as we're headed unfortunately in 2016 our excellent management team is ready to do that, I am convinced that our managers will make an excellent work in 2017.

Thank you very much and have a good rest of day.

Operator

Thank you. That will conclude this conference call. Thank you for your participation. Ladies gentlemen, you may now disconnect.

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