Donat Müller - IR Helmut Schmale - CFO Jürg Oleas - Chairman and CEO

Klas Bergelind - Citi Max Yates - Credit Suisse Lucie Anne Lise Carrier - Morgan Stanley Michael Kaloghiros - Bank of America Lars Brorson - Barclays Frederik Bitter - Exane BNP Paribas Peter Reilly - Jefferies Sebastian Künne - Berenberg Sebastian Ubert - Societe Generale Wasi Rizvi - RBC Capital Market

Yes. Good afternoon, and welcome to GEA Group's regular second quarter 2017 call.

As a roll, up to last week's call when we explained the assumptions behind our revised outlook for 2017 and today our CFO, Dr. Helmut Schmale will present the final numbers.

And both me and our CEO Jürg Oleas will take questions. I'll draw your attention to the deck that we have now passed on to publication date but third quarter 2017 to November 03, 2017 where you also find that in reference in our financial calendar.

So, you don't need to remember it now. The need is we want to better take advantage of new lead available of reporting moments from one final subject that will be explained in more depth.

Reports have come up rather late and we have two German bank holidays in that weekend November 03. So, let me now hand over to Helmut.

Thank you, Donut. And welcome to our call.

So, the first slide summarizes the key messages for a quick overview. I will address all details in more depth during the course of the presentation.

Because large orders were up by over €90 million, orders were slightly altogether and here I would like to mention that this order intake for second quarter was a record quarter second order intake. Sales were down 1.6% year-on-year.

The €30 million sales volume MBA solutions was one of the key elements, which also impacted the EBITDA of the business as we all reflected the occasional of our call last week. Return on capital employed and cash flow drive on margin in the last four quarters were impacted by the adverse developments in operating profit and working capital.

With regard to the share buyback as published in weekly updates on our websites we last Friday, July 21 have spend about 70% of the funds set aside and we bought back around 8.4 million shares. Here again I would like to come back to an overview in which teams we are going on -- turning to start investing this year and next year in order to raise productivity, transparency and advance the integration of over OneGEA organization?

Let me quickly summarize these initiatives again. Firstly, steering and control systems, which are aiming to increase our transparency, with the introduction of harmonized cost reporting, we have achieved a first major milestone of our OneGEA finance controlling system.

Transparency of cost types, legal entities in a standardized format is now available for all managers. Total elements in this pocket are reported database that generates an aggregation of the most recent ongoing profit calculations at any time, which was introduced meanwhile as being filled up now.

The implementation of a new HR software that allows better analysis of capacity and cost aspects and also allows the tracking of temporary labor has been introduced this month and is now in the ramp up phase. A new GEA Groupwide CRM customer relationship management system, which besides the operational aspect of better managing customer relationships, will afford us higher and more continuous visibility on the order pipeline potential is introduced as well in this phase.

The second bucket comprises initiatives to raise productivity here reporting although it previously on our initiatives around manufacturing footprint, lower material cost in order to bundle procurement activities or buy bundling procurement activities and as well harmonizing our engineering tools. Thirdly, we are diving forward our modernization of the IT operations.

Notably here it contains the transformation of our entire IT server back end into outsource Cloud services, which we are starting to operate these days. Lastly, developing a deeper understanding how digitalization will present new opportunities to our business is the last bucket or the fourth bucket in these compilation of strategic project in order to complete the OneGEA structure.

Now, we promise to give you some more granularities on how we are going to spend this money. So, the total cash, which will be spent for the above-mentioned projects will be around €200 million for the two-year period 2017 and 2018, half of it being CapEx and half of it being P&L charges.

Let me shed some more lights on the OneGEA finance initiative. Until 2015, GEA was managed from a legal entity perspective.

The management team was responsible for the bottom line of the P&L of legal entity under review. However, by that we were never able to understand how much we earned of certain product lines or applications.

The new OneGEA Organization will allow us exactly this below down from a global perspective. We will understand how much money we will earn, for example, we've daily separated across regions and countries and legal entities and will abandon the purely legal entity view, which however still exist.

OneGEA Finance, further on I would like to highlight that we need to migrate to the new OneGEA Organization all of our 200 legal entities or more than 200 legal entities. That was genius reporting that I mentioned and processes coupled with a high variety of local finance systems is a challenge, we have to mitigate on all way forward to target state and reporting.

As a first step of our journey we roll out a global cost infrastructure, which will allow us to understand the primary course of our organizational units. Sales and gross margin by products group's application and services and an important milestone.

All of the above to be finalized by the end of 2017. As next step, we will split the total proceed into overheads on the one hand and cost of sales on the other hand.

In the target state, we will achieve a harmonized structure at we bottom across legal entities and the financial dimension, which is life of our organization or with our new OneGEA organizational structure. Many talks are around the harmonization of GEA's ERP platform, which are part of our investment into the CRM systems.

Let me provide you with some more granularity here. As we speak we are migrating the weakest platforms into already existing solutions and as case may be into interim systems in order to facilitate the final migration at much lower efforts.

With the second step by 2020 we aim earn 80% of GEO on an SAP platform. The final task is to mitigate all remaining platforms to a targeted OneGEA ERP platform.

Let me add one thing here. Required funding will go beyond the year 2017 and '18.

However, maintaining and servicing the old landscape would be not much less in expenses compared to now the roll out of plant whole out of the new ERP platform. So, what we have in the end of our strategic projects is so to say the initiation of this initiative, which is a special CapEx in that sense that we just pick this initiative off and later on then roll it subsequently and that is then to be swallowed by our operational expenses.

TCS '17 quarter two. The order intake could match prior year and by that we achieved a new record level as I said already for the second quarter.

The business area solutions booked a couple of large orders in beverage, daily coffee and pharmaceutical business. Sales while BA equipment is up, BA Solutions came in lower compared to last year.

Within the BA Solutions, the strongest volume performance we see actually from our food applications. The increase of BA equipment in profit and margin equipment balance for the year-on-year reduction in business area solutions.

The EBITDA margin for BA equipment is up about 150 basis points to 16.5%. The profit reduction BA Solution includes the additional charges of €7 million for the authentic filling line.

Slide Number 13, which is the next slide refers to the margin progression over time. GEA's margin development in the rolling last 12 months and which reflect of course recent quarterly declines against prior year.

Our aim will be to reverse this trend of crossing the second half of 2017. On an intake by size, as mentioned earlier we got a good set of larger orders for quarter two 2017, but evenly important is that orders up to €5 million which will still contribute to the volume of 2017 are above €1 billion for the quarter.

The drill down of order intake by country offers a perspective into the order intake development of our top 20 countries, which account for almost three quarters of all our order intake. From a last four quarter perspective two of our large national markets; U.S.

and Germany are growing while China remains in downward sentiment. Europe, represents a mixed picture while Italy and Spain tend to be up many of our European markets are still in declined.

The development of emerging markets is slightly share India’s overall order intake is now about 38% or 37%. Let's then continue with the order intake by industries.

Dairy farming saw another sequential uptick in orders, which translates into a book-to-bill ratio above one for the last four quarters. Here we're processing order intake as you know much depends on larger order intake, which bought up the sequential development quarter by quarter.

However, GEA remains down in a year-on-year perspective and in an annualized perspective. For the period and the review of the food business grew in all comparisons.

The customer industry beverages continues to be under pressure with a book-to-bill ratio of only 89%. Pharma has recently been on the rise also good or the last four quarters.

Chemical is down sequentially and however, the book-to-bill ratio remains above one. Oil, gas and marine continue to be down bit industries, which also have become wide competitive.

The remaining other customer industry were up quarter- on-quarter and have minority and perspective of book-to-bill ratio comfortably about one. So, all again of why we see changes here and there about 1.5 strongly grew from LTM perspective while about one third of oil exports has really declined.

These last 12 months graph are giving you a better impression of the order intake and sales trends over time which have not changed fundamentally compared to quarter one. In summary, we can observe dairy farming is continuing to recover.

Dairy processing still declining although sales and bottomed. Beverages, continuing moderate decline.

Food is growing. Pharma and chemicals upward trend since a couple of years.

Hours are on the rise since last year book-to-bill ratio. The slide differentiates the weighted average book-to-bill ratio of 1.03 by geographies and industries.

The ratios are calculated on a last 12 months basis smooth all seasonalities and random quarterly fluctuation. To summarize the picture along its two dimension in terms of geographies the Americas and DACH and Eastern Europe have a highest book-to-bill ratio while Asia-Pacific is moderately above one.

Northwestern Europe -- this includes U.K. and the Nordics is weakest, and Southwestern Europe, Africa, and Mid-East, are also moderately below one.

In terms of industries, food, pharma and others are comfortably above one; dairy farming and chemical moderately above one; dairy processing and marine are likely below one; and beverages and oil and gas are clearly below one, which mirrors what I said about those industries before. The lower box gives you as usual the weights of the cross sections.

The order backlog went up further in quarter two and is now €150 million above prior year end and €50 million up in the year-upon-year comparison. The recent decline in the last 12-month curves in return on capital employed reflects declining EBIT as well as the increase in the annual average working capital.

While the blue curve uses operating EBIT in the numerator, the orange curve is unadjusted and shows the impact of the one-off charges, mainly related to Fit for 2020 and strategic projects. Working capital development, as of reporting date working capital to sales declined for the first time since quite while.

The last four quarters average, nevertheless, came up sequentially as arithmetically consequence of the current second quarter working capital level exceeding last year's quarter. A table on the next slide offers a more granular view on the drivers of the working capital.

The fact that working capital was sequentially down was achieved by the fact that trade receivables, netted with advance payments developed favorably coupled with increase of trade payables. Increasing elements were inventories which is owed to the higher and net POC was yielded.

Similar return on capital employed the cash flow driver margin is a metric based on last 12 months. Also return on capital was impacted by the recent decline in operating EBITDA and the increase in the annualized average of working capital as visualized in the light blue and gray portions of the stacked bars.

Again the orange curve is unadjusted for restructuring and other one-offs as well as PPA effects from recent acquisition. Let’s turn to the liquidity bridge, the free cash flow from continued operations over the last 12 months adjusted for expenditures of Fit for 2020 rose to almost €260 million.

The main driver being the last 12 months increase in working capital coming down compared to a quarter ago. Service sales continues to out on new machine sales with an organic growth rate of 3% for both business areas so that the last four quarters share is now at 31%.

Let’s then turn to the outlook for the full year 2017. So, we are aiming for year 2017 now for a moderate sales growth in positive terms to an operating cash flow to drive our margin based on operating EBITDA and on CapEx adjusted for strategic project of 8.5% to 9.5% both key figures unchanged to our original guidance.

The operating EBITDA, however is now adjusted for strategic projects and the cost for the EBS technology which we still have to swallow this year. So, the newly or the new guidance then provides a range of €600 million to €640 million of operating underlying EBITDA.

In order to show up with the release of the guidance in the quarterly report I added one page here as an addition page which covers the expenditures and risks for the bottling projects as part of our guidance according to the German commercial code so that you’ll then find also the operating EBITDA including these critical projects to be in a benefit between €573 million and €633 million. The following next slide contains for the parameters that maybe of interest for modeling purposes and you may use them for you models in order drill down into more careful view of potential cash flow generation.

Well thanks for listening and that concludes my short presentation on the quarter two numbers.

Yes, good afternoon gentlemen it’s Klas Bergelind, I have three questions please I will take them one at a time. The first on the cost for the temps and EBIT bridge last year we had temporary workers at the COGS level and I guess this is okay if you can mark up your project accordingly for that extra cost.

But this year we have more time to realize your own internal efficiencies so the shared service from the outside the visibility is pretty low here on how these costs will ramp going forward. I think you talked previously about 2,000 people and that they should fall to 1,500 people at year end and that would be a year-over-year gain in the bridge.

But when we look at the 50 million of savings in the second half we can't see this affect so you’re still talking about 20 million in cost savings relating to non-personal cost not relating to temps. So, in short it seems like you're assuming that these temps will still be 2,000 people at year-end is that correct?

Yes, the temps we are tracking the following way as you rightly mentioned those temps who are working for the project and are being paid by the customers via the gross margin are actually not our major concern we are monitoring that carefully that they do not allude the gross margin so far, we don't see that in the first six months. And actually, the higher the number of temps in the execution the better because it allows for more flexibility over, cycles of the different APCs or product.

When it comes to the temps in the overhead part it is right that we will not fully safe time in the second half of the year. But we are starting to reduce now the number of temps in the overhead parts which were needed to support several systems which are in the ramp up phase as Helmut Schmale just lined out that one of them is the one we have financed to work the CRM and all these systems which are mainly projects of the central functions of the global corporate center and when we have temps there to support the ramp up of those systems, these are to focus overhead temps that we will also gradually run them down because here of course they are not paid by the customers and they are diluting our overall result margins.

But just to follow-up the 2,000-people falling to 1,500 is that then including both the people at the COGS level and in the overheads?

For the operational temps which are being paid by the customers we don't give any more targets to our managers because as long as we do see that they're being paid by the gross margins it doesn’t matter where we have 1,200 or 1,500 or 1,600 temps that or vice versa. As I just said it’s better to have a rather larger number of temps in order to allow for flexibility of course the limit always that if you have too many temps and because after the training the experience et cetera then you'll also start to have non-efficient processes.

But we're not giving anymore targets to our operational people as long as the temps are clearly shown to be paid by the customer.

Okay. My second question is also on the bridge and from what I can see looking at the demand trends this quarter there is little that suggests that we can see more than moderate growth for the year.

And there is possibly still risk of delivery delays, even if the backlog and solutions have a shorter conversion and that to me would suggest 600 million of EBITDA for the year. But then you’ve also said that the 20 million of savings is a challenge to achieve as this doesn't relay to layoff.

So that could leave EBITDA at 580 million under moderate growth. So, I am trying to understand better what gives you the confidence in the 620 million midpoint?

As I mentioned in the call when we did the profit adjustments about a week ago there – it's a combination as you rightly said the model across – is we are assuming there and we explained it last during last week's call what were our assumption for sales growth and for solutions we have assumed a very moderate growth or very conservative growth actually that would not be any more a growth. So, we do feel that that is very conservative whereas on the saving for the overheads that's a bit more aggressive.

The reality as I said last week will be a combination of those things maybe growth will be not that bad and the overhead thing maybe we do not achieve the last 5 million that we feel quite confident that we will not go below the €600 million. But I cannot tell you now whether exactly this moderate growth will come or the savings.

But the scenarios we have pointed out are indicated as the lowest possible and/or at the EBITDA profit.

And then coming back to the growth and focusing a bit on instant coffee and what kind of visibility do you have here on this growth looking ahead. We had several areas for GEA in the past showing strong growth and then we faded off to one to two years I’m thinking about Greek yogurt with a strong growth in U.S.

and then we have the boom in infant formula and now we have instant coffee. Is this a cyclical upswing and then growth will fade here as well or is it more structural growth that you see here?

No cyclical in the coffee usually you have cycles between four and six years the cycle is driven by the following fact that if one of the big coffee produces I don't want to name any brand but you can imagine start to increase capacity usually all the others follow. Because if they do not debottleneck their capacity constraints then they lose market share.

So, when the first reaches the limit of production and starts investing capacity expansion we have seen over the past 10 years or even longer than that the others follow. So, you have all in a sudden four, five projects from the large customers and from smaller customers debottlenecking their capacity, their production constraints.

And then if they haven't start in the capacity they are of course plan for growth so the capacity is thin enough for the next four or five years and then the cycle comes back. What we have seen in the last year at the beginning of this year that this time the level of investment intensities a bit more than in the past cycles but certainly that cycle will also calm down again.

So, I don't believe that we will have the level of order intake in instant coffee plants which we did see last year and this year also next year or the year after next year.

My final one is on large orders and pricing you took a large order in beverages it's been a long time ago since we've seen one you avoid the large orders here because of price competition in the past. Has this changed in anyway is the price backdrop in beverages improving and if you could comment on the pricing on the other large orders also the food and pharma whether we should think of these orders being lower price than the large orders that you took last year?

Thanks.

Beverage situation has not changed at least not on those projects which we are observing for it. So, we're trying to focus on those projects whether it’s for specific reasons not too much competition could be because of technology things especially innovation thing et cetera.

And we do also focus more on the Brownfield project which are more complex for the customers where he's willing to pay an add-on Brownfield means an expansion of the existing site. The big competition is on the fuel Greenfield size where margins are not that attractive.

And we don't believe that this is going to change in the near or midterm future. When it comes to the other large a project as said the same comment as I made last week is also valid here.

There is a bit more price pressure on the project and we of course are not willing to take those because if you are diluting gross margin of large projects you have it in for one half or two years. So, we’re not sweating it out and it's not just for short-term loading of the organization you can rather consider to those things on smaller projects where you can quickly load a part of the organization if it's in need, but if you do that for larger projects I think it’s not wise.

In general, it depends of course very much on the different markets there are industry especially in the food area which also includes coffee in the area of pharma to certain extent also chemical, APCs where that's not the case but certainly in the area of beverage and also dairy because dairy has been going back quite substantially in the last couple of years. The top line when we compare to the boom times between 2013 and 2014 or 2015 we had one or two exceptional large orders last year in dairy at the beginning of the year as we published that general did trend for dairy processing of new or semi new plants we fill it at the required low level.

Hence the price pressure there is bigger because more peers are competing for it.

Thank you.

Thank you. My first question is to surround the delayed projects from last year that you showed in your bridge that was impacting at the DACH.

Could you talk a little bit about how those delayed projects have evolved whether you expect to deliver any of those next year or whether you’ve seen any of those canceled?

No, we did not see any more cancellations or scope cancelations apart from what we have history as a normal historical level – of course it’s always in some areas of cancellation of a part of a project but we don’t see that and from the delays of last year’s project which we address we do see that there is a recovery that we are executing. And that's also why we're quite confident for the sales conversion in the second half of the year in the area of solutions of those APCs.

Because we do see that the project as from today's point of you are progressing now in a more normal way.

Okay. Thank you.

And then just a second question when I look at your, your sort of book-to-bills within your end markets obviously pharma and chemical two of them more positive book-to-bills and I think in your release you talk about negative revenue impact coming from pharma and chemicals. So, this to me looks like with two end markets which you’re going to pick up in the second half can you just talk a bit about on purely the pharma and chemical segments what they do for mix in the overall business so these margin accretive or dilutive relative to our overall group margin or solutions margin?

In relation to the average APC margin they are accretive of course.

To the overall group?

No to the overall – and we have six APCs in the business area solutions as you know and the average of – this two APCs are exciting?

And if can just a final question would be around the share buyback and obviously you’ve executed on that and relatively I guess quickly within the time period which I guess make sense given why share price is. Just in terms of overall leverage for your business what kind of leverage do you think is kind of level that you can run GEA at or what is the right leverage for your business?

Well your observation is quite right that as we speak are executing the share buyback of our quickie and at the end of the day we will then re-leverage the balance sheet as the need maybe. We have still two existing credit lines of together €140 million which are then going to expire within these days and so we are just about making up our mind of how we are refinancing then the group.

And it could not be that short-term looking forward that we could think about or boarding a loan volume of about $5.5 million.

Okay.

Maybe if I just clarify we are not accelerating the share buyback as you know it’s out of our governance and that’s how it has to be. It's the banks which are mandated and it up to them to decide at which time to buy how much because as insiders we are not allowed to accelerate the share buyback just because share price are low this is a pure discretionary decision from the mandated bank.

Yeah thanks Jürg and all the best. That's beyond our control.

Okay. And I guess I mean just finally on M&A when you look at obviously you still have a very healthy balance sheet and we have seen a slowdown in deals I mean do you given all the reorganization that is going on with various ERP systems, is the business in a shape where it can absorb a deal, or should we think about deals being on hold for the next 18 months as you try and bed down the new systems within the business?

We are ready and willing to do deals on lower or midsize scale. However, you're right to see observation.

We were abstained from a very large, heavily influencing deals, or we would also abstained for the time being for the reasons you mentioned yourself, from doing in one year five deals each 50 million or so because just for the big number of five deals that would absorb our management and tension into that action where we needed now to happen in other direction. But one or two deals, small or midsize, I don't see any problem that management focus can absorb.

Okay, thank you very much.

Hi, good afternoon, gentlemen. Thanks for taking my question.

I’ll start actually with the first question which is more a follow-up on Max's question regarding the share buyback and the capital allocation. I understand you’re still interested in doing M&A, but if you were not to be doing kind of M&A this year, are you seeing scope potentially for an extension of the buyback?

That’s question number one.

Actually, let me answer that question. That is not a plan which we are actively looking to.

We believe that we will spend the rest of the available lines and the available funds in line with our business.

Thank you. The second question was regarding the order intake.

I mean, you have some bit more large orders coming. The orders generally are out.

Can you comment on the margin dynamic that you see currently in those orders versus the margin you've in the P&L or I’d say the margin that you were initially expected to have in the P&L this year.

You mean, the margins from the orders in the order backlog?

Yes. So especially the orders you’ve taken in the second quarter or since the beginning of the year considering that the second quarter shows an increase or some form of acceleration.

Let me answer that in different part. When it comes to the service products in general, I mean, this is an average for the service business in particular.

In some parts or in some countries, it might be different. But in general, we see the order intake or the gross margin of the orders, we are factoring slightly higher than last year or at the beginning of the year.

So, we do see that we have some pricing power there to introduce price increases etc. When it comes to some products on the basis of area equipment, I think in general the order intake margins are at the very similar level as we had seen them in the past year.

Means which are also then, of course, in our order backlog with maybe the exception of MDS where we can apply a bit more pricing power because it is recovery of the industry from a major setback in the last five quarters. And there is the marine, oil and gas industry is may be a specially industry which is -- they are quite intensified too for the order intake.

So, their pricing power is also limited. Maybe some what we care than in the past.

When it comes to the application centers in solutions, I've been talking on the large projects and in specific, to questions on the APC or application center beverage where there is quite an intensive price fight still for larger projects or normal projects. But in general, what we see is what a larger project in the APC of solutions, we don't see increase of the order intake or order intake margins we are taking now compared to the end of last year.

We mentioned in the Q3 call last year that we had to make more contentions towards the end of 2015, if you remember that. That has improved over the second part of last year, and that's where it stays.

When it comes the more specialized and smaller projects, we are trying to impose slightly higher prices. And in most cases, we success.

Thank you. And then the last question was around just strategic project.

I might have missed that at the beginning when you were discussing this. You had given us indication on the cost for 2017 and '18.

As you said, the full kind of IT deployment will be finished 80% by 2020, and the rest by 2023. I was a little bit surprised to see that you’re not necessarily forecasting cost.

Or after 2018, even though you still seem to have quite a lot of work to do until 2023. So maybe can you explain that again?

The point I heard you had lost that, yes, we are going to spend some more money for the years to follow, also to ramp up the ERP system landscape but just might affect that we will downscale all the existing systems which we all of us would be need to maintain and have service packages on as much as we can still service them. And that is a balance which where we then said that is normal operation business which we are going to swallow in our numbers.

Okay. And are you able to indicate the savings you are expecting from those project, notably the IT related project?

You’re putting out all of this cost, but what’s kind of the payback or the saving?

That is a hard one. Likely for all these IT-related investments.

I mean, at the end of the day, that's a goal. So, we will be just more efficient.

And we have better granularity of information and we can provide better information to our management teams. And foam from the pure payback of the IT systems as such, any payback would be then beyond the 2023.

However, the question is, how much more the business can do, and that is hard one really to evaluate. And this is why I see that as an growth enabler investment in line with strategic utilization which we need to do.

Thank you.

Yeah, hi, good afternoon everyone. My first question is to come back with before the backlog -- I think coming back to Max’s question again, on cancellation.

I think you said that you’ve on concession. I just struggle a little bit with that given backlog is roughly flat despite a very good book-to-bill in Q2.

So, if you had a concession, just where you did had no concession for it. That’d be the first part of the question.

Then maybe coming back to what Klas was asking about you taking orders. Just want to hear basically what that’s changing the company and the kind of like the review process of large orders.

And I’m asking that especially given, you mentioned that you haven’t got the kind of the old steering systems and the whole operation that you target at the end. So just want to make sure that you’ve got a great ideal cost that you imply in bidding in contract these days, that would be question number one.

I must add, could you please repeat that question because I did not quite understand what is the question.

The first part of the question was just looking at the backlog evolution in solution, I mean, it seems 17 million Euros. I think the book-to-bill was pretty strong 1.12 in Q2 orders of 17 million more than sales.

I’m just surprised that the backlog didn’t move more. So I'm just wondering whether there is a cancellation.

And if there is a cancellation, if you did get a compensation for it. That’s the first part of the question.

Then the second part of the question is, when you’re bidding projects these days and you were very successful in winning contract this quarter, I'm just asking you what is now the process for you when you bid to a project? Whether that’s changed compared to past when you were bidding on project which didn’t have the right level of margin, and that is especially alive given that you're not yet done with your steering system investment et cetera and you might not have the full view yet.

Well, we do have cancellations in the order year to date of about -- in sum, but this is for all of the year of about €30 million, but I will not say that’s a rather special level. For the solutions part, it’s a bit more than half of it where it’s about €20 million to €25 million in order of that magnitude.

We usually for cancelation, we get compensation, yes. We are, of course, watching carefully when we do the contractual terms that if it's not because of our fault, that the contract is being cancelled that we get the compensation from the customers.

So usually a cancellation, of course, something midterm very bad. On the short term, it gives you sometimes an additional profit.

But that’s, of course, very short term. On a mid-term, it’s a bit disturbing, then, of course, if the number of cancellation is [indiscernible].

Then your second part of the question, when we did have last year beside the bottling project to projects which in execution then turned out not to perform like it was offered either due to other technical issues or innovation things or for forgetting scope in the offering. We currently have in the IF solutions, 5,000 projects.

You have, an average, always 5,000 projects under execution. So, you will always have, of course, here and there projects which was wrongly calculated or something forgotten.

But on the other side, what I call a lucky air compensation, you have seen projects where maybe something was calculated wrong but in a positive sense. So, there is a compensation for that.

So, we don't see in this six months that we have a major issue there. We have adjusted, as we’ve said in the Q3 call, some overhead add-ons.

We have adjusted hourly rates, which means adjusted means increase, and those are the terms are the ones we’re bidding currently or has been bidding in the first half of the project.

And my second question is on just on innovation and digital. I think in your strategic project, you mentioned some possible digitalization.

Maybe just dig in to understand what they were and more broadly on innovation. I think you’ve increased a little bit R&D in the first half of this year.

But on benchmark to some of your competitors which are renting innovation, you’re bit below. So just want to understand once you’re done with the efficient program, you’ll focus more on R&D and innovation?

Or you think that is the right level that maybe you’ve got more focused R&D than some of your competitors. Just maybe to understand like your expenditures for R&D expense in your P&L versus some of your competitors.

You’re right. When you look at P&L and you compare to many of our peers it might appear that we’re something bit below the average.

However, you have to keep in mind when you do these comparison that the innovation that we do paid by the customer almost in addition to the same. But, of course, because it’s paid by the customers, it does not appear in the overhead as R&D expenses.

So, the real innovation which our engineers are doing is close to the double of the amount you see. One part is being paid directly by customers, and the other part is burnt on our own P&L.

In general, I believe because intensity of competition is slightly increasing as I have mentioned, answering some of your questions, I also do believe that on a mid-term, we will slightly increase that level of spending for innovation or R&D which are being paid directly by us. And, of course, trying to do innovations together with the customers because it's not only the advantage that the customers are paying for it, it's also it's an innovation which really then is very well targeted to the customer use because you can do a lot of innovation, but if the customers don't want to have that, then it's for nothing.

And innovation which we do for customers or for the customers are, of course, best fit. So that part also we would want to slightly increase that, but also the one which we paid.

So, I would assume that if you look at the P&L in the next year or the year after, you’ll see maybe slightly increased R&D expense.

And just on the digitization that you mentioned in your strategy. I mean, can you maybe give us a bit of details on what that is digitalizing your factories, or is it like digitizing your products?

Yeah, there are three categories of digitalization effort. One, which is often forgotten or not seen like that, but I think is a fundamental thing when is comes to digitalization is standardization which we’re doing.

When you think that with the tools mentioned like the one we’re [indiscernible] work on CRM and all these things, that’s nothing else than digitalization. If I take for example CRM which is costing us a lot of money but it makes a lot of sense for the future for GEA, it means digitization of all the customer relationships, the feedback, the installed fleet, the behaviors of the customers etc.

which we’re digitalization in this quite complex platform. So that’s also one way which you can call digitization is standardization of process, and then bring into computing platform.

The second part is the offerings to our customer smart solutions where customers if they wish can order tracking and intelligent algorithms to predict behavior of, let’s say, of their cows or the machines which they are buying from us. But we’re offering more and more services to help the customers to predict behavior of the process lines we are installing or the machines we’re delivering or the applications like for the cows etc.

And the third part where we’re investing money in digitalization is to invent new business, to see whether there’s something totally new where we could make a business out of it for the future, some things which we’re not doing. So, number one is digitalization of our main core business processes in order to have computing power behind it and less manual and human power behind it.

Number two is selling more smart solutions to our customers to help them predict behaviors. And number three is out-of-the-box new applications and solutions which are not existing yet, but with the help of the computer and storage power may be becoming a real business for the future.

And the last one is maybe a longer-term question. Based on the slide that you show, we saw the initiative that are going on in the timeline.

And maybe putting aside the market, the pricing pressures there which are not in your direct… Should we think that you’d be as a company in the position to make the 13-16% margin in 2019 once the project is done, in 2020 once they’re all rolled up, or in 2023 when all the IT is set up and you’re basically at the end of that project.

Well, as I said last week in the call also, we’re going to make, or we have started to make the budget for 2018 now. And to also the mid-term planning.

A lot of factors are playing a role in there, is volume assumptions which is one of the key inputs for that to see what the profit is going to be in the next year and the years coming after that. And the initiatives you have been mentioning are mainly gross enabler, and we have not been growing according to our vision in the last two or three years for different reason.

Yeah, there was a major crisis in dairy processing, MDF, and also the dairy processing. I would still not call it -- we saw off that crisis.

So, we're still at lower rates as we were in the good years some years ago. So, to achieve the 13 or beyond those percentage, we will see when we have made up the budget for application and product groups and how they plan the future and at which costs and which pricing environment.

And then we can come back to.

Thank you very much.

Hi, thanks. A few questions from side.

I was a bit late on the call. So, I apologize if some of this is a repetition.

But first of all, your operational excellence program so the manufacturing footprint and supply chain optimization program. Have you provided us with an updated view on your cost savings associated with that -- I think that last year we talked about 60 to 80 million range and separate to that.

Can you help us – how much has come through so far, this year and how much you expect for the rest of the year?

We have not provided let’s say new guidance recently on that we have started most of those initiatives but if you remember also at the Capital Markets Day we said that the potential savings coming out from that are not net savings I just would like to remind all of us that if we have the salary increases as an average on worldwide basis of 3% to 3.5% at the current personnel cost levels which are trading if remember that correctly LTM wise end of June at about €1.27 billion 3% you can calculate on your own how much that is. So, we have with this productivity measures the first have to digest the cost increase of the wages.

And what is left then beyond that provided that the growth margin face as it is, is an additional profit, but currently we have not we certainly will come back on that but I can tell you we have started those initiatives as we presented them and we will give you midterm an update where we stand there and what is going to be the impact for a bunch of 2018 and a midterm planning in 2019.

Just in terms of order of magnitude should we think of that 60 to 80 gross annual cost savings by I think you mentioned year-end 2019 to be maybe on net basis something that looks more like 30 to 40 would that be a sensible assumption?

I would not like to fix now a number because as I said on the other side we have to person our cost increase. We have to see what is going to be the assumption for next year on the current FTE base plus the assumed personnel price increases which we have not yet decided on our own what's going to be for the next year.

And as that has a quite a big leverage at a level of $1.2 billion or $1.3 billion in the future personnel cost 1% is already $12 million or $13 million so that has a huge impact in this and give us some time to calculate more detail when we do the budget for next year what it is.

But I know it’s understood and separately on your roughly $100 million spend in 2017 and 2018 in IT European digital so outside of the operational excellence program. I wasn’t sure I understood I think you answered briefly before but what are the level of costs we should think of in 2019 and beyond at from that.

And will they all be expensed and will they be all above the line?

For these bucket of strategic measures which we have indicated here we originally planned limited amounts also for 2019 which we know have anticipated here until the year 2018. So, there was not much left for year 2019 out of these measures which we have indicated here.

And then the other part of my answer was one of your colleagues particularly was asking about the IT key investment and yes just well that is kind of ongoing business then later on we need just to facilitate the initiation of that and then it will be later on also kind of ongoing business that you’re going to replace outdated systems by the new template and the new key system which we are now going to develop and to change over time then or exchange old systems over time so that if something which depends both swallow in the operational result and an operational CapEx.

Okay and sorry just on the $100 million rough it is being capitalized now in 2017 and 2018 have you provided or can you provide us with a rough sense of how that's getting amortized and what sort of earnings drag which should expect from that over the subsequent years.

Oh, I mean that is that will be too much would be touch for here then you need really to go into all – individual programs which we’re going to initiate there and just to do in which I wanted something I would like to refrain from. I indicated there some elements in the way I just said well these are growth at our M systems example for me the growth enabler are not all the ERP system.

And would hardly find the payback how to calculate it would be pure assumptions of them – and these are already big buckets the same would be. How can you calculate payback if you just get better information more precise information and more granularity?

And this is why yes on the manufacturing footprint you of course already elaborate on that over the last couple of minutes they of course will come how that will impact and our profitability in the years to come. But as I said these are two quickly in CapEx spends which are doomed and then it’s hard to really finalized any payback on that.

But because it takes decisions which we have taken and I would say in average if you write down it only depends on what you have in the balance sheet maybe yours so we benefit between 680 or something like that one.

Understood and just a quick follow-up on earlier question I think there was can you how many overhead temps do we have to today and of the total roughly 2,000 I think at peak how many were overheads when did that peak and how should we think about how that's phasing out over the next couple of years?

Yes, well as one colleague asked that initially the number of temps which are being paid by the customers are included in the gross margin we are not worried about temp anymore.

That was not I was asking to I was asking to overhead temps?

Yes, the overhead temps we are costing us a couple of million more than let’s say we are targeting in the future so that gives you a rough idea on how we will scale that down in the overhead temps the overhead temps are those who are supporting now the start and ramp of let’s put it shell services work day the CRM system to one gave a finance systems et cetera.

It’s quite a comminuted answer I am just asking you how many overhead temps do you have today and how many do you at peak?

I see I just pretty did the math here roughly we have about $1000 overhead temps.

And what was the peak?

That is difficult to track you really because we have broadened the scope of temps which we are reporting. So, we are not reporting temps in the narrow sense but also contacted work us and by that you cannot – hope really the numbers which we get today for all the temps we have paid for what we had previously cost it’s cost reduction on the scope of reporting them.

I’ll give you an example why of course we can answer those things but it would then end up in a very detail discussion. First of all we had compared to last year or the first part of last year quite a lot of consolidation changes as you know you have integrated Imaforni that brought of temps with it then we have made first consolidation of legal entities which are 100% clearly entities that has not been consolidated such as I think the major one was last year in Columbia, than in Chile, etcetera as soon as a legal entity goes beyond a certain size and it makes sense to fully consolidate that which means we have to burden the cost for the audit fees and all these things then we consolidate that.

So those legal entities of course are also bringing temps with them. Then we did have in the past a lot of temps which are still the same temps they’re still there also in the overhead part because overheads of not only mean now here in the global corporate center products so over temps means also supporting SG&A or for example in the service business a lot of people we are ramping up not a lot but some people we are ramping up now in the service business to push that business are also if the help of temps and temps if they are selling spare parts they going into the SG&A so folks the overhead temps then.

We had also in the past a lot of so called outside or contract workers which were not registered I mean we had the cost somewhere, but they were not registered as temps plus A or as such we have in order to have full transparency we forced now the organization to also recognize in our temp reporting all those temps which have been contracted by outside working companies so called people lending companies etcetera. So, we have all that transparency but if you ask what was the peak and how much was it last quarter and then we always have to make this deductions and add-ons et cetera.

What I can tell you is that we take exclusion of those temps which are supporting the sales process is mainly in the service organization which in a narrow sense we called the pure overhead temps I think we have the peak behind us and we are starting to reduce them.

That's helpful color thanks. You can -- I squeeze in one final one just on that dairy processing I appreciate there is lumpiness driven by large orders you had some very large projects in early 2016.

You just still talk about a trending lower and of course we’ve seen now four consecutive quarters of order decline for the dairy processing segment it sounds like the slippage we had last year you feel very confident gets converted in the second half of this year or part of the released and therefore we will see some growth invoicing for dairy processing in 2017. I wondered whether you could give us a sense for how we should we think about dairy processing in 2018 I mean obviously based on current order trends and presumably phasing followup the backlog I wonder whether it would be safe to assume the dairy processing most likely is down from an invoicing standpoint 2018.

And on the basis that you see an order pick up in 2017 in the second-half rather of 2017 that will be more to be seen and enter those 2019-2020 type invoicing recovery is that the right way to think about revenue outlook in 2018 for dairy processing?

Yes, you got it right the order intake year-to-date for our application it’s not MDAs is the application of dairy processing it’s substantially below previous year that of course also has to do with one major order we got last year I think in January or February a large order in order of €60 million to €70 million sorry but even without that it substantially behind the previous year-to-date it is also substantially behind the order intake substantially behind LTM. So, if I take last 12 months ending June this year and comparing with the full year 2015 or 2016 it’s substantially below.

So, your conclusion is right currently we have a flat slightly even growing, development of phase but looking into 2018 and beginning of 2019 due to this quite week order intake in dairy processing in the first six months. And also, if I compare LTM suggested we do expect a major downturn in invoicing or in phase of course we helped in other application centers which are point into the other direction but dairy processing it defer six months but also towards the end of last year and that's why we have it in the LTM so we have been substantially below previous year or previous year-to-date.

That’s very clear thank you very much.

Yeah thank you. So, the first one has already been answered that was on a project pipeline and dairy processing looks into the second half of this year and also into 2018.

Then relating to that would be my question on how does the food project both project pipeline look like book-to-bill 1.09 times in the second quarter and is up from 1.06 times in Q1 so sequential improvement is all ATM that was sort of first question. The second question would be on your strategic projects.

Could you provide a breakdown of the P&L cost in 2017 and 2018 how much of that will be redundancies, how much consulting expenses et cetera? Thank you.

Yeah, the application center food that's not food solutions which is on equipment side I think you're asking for food the application center food has been growing in LTM compared to full year last year again around 7% yes. And year-to-date compared to year-to-date last year it has been growing even more than 5% so the order intake by plant for the application center food is above average and is a good one.

Maybe I can take next one on the strategic projects. This is all about expenses for software uphill or hours to be spend in order to develop these technologies and maybe also engaging with consultants here and there, there are no redundancies aligned with both projects.

Sorry not in the operational excellence initiative?

In the operational excellence initiative, there is of course a case that we are shifting activities. You know that we still have a very high footprint in the high rate countries and that of course we need to address.

But that is not that we are expecting there that we are having less volume and less production. We assume our to further grow and that means of course that all these products are going to be manufactured or as of we would like to do that with more flexibilities and bigger ups and centralized it more.

Okay. Thank you.

Can I please add a question to my first one on food? Just in terms of, we are talking about a four to six-year cycle typically in food.

Where are we now in this instant coffee on the coffee cycle at the moment?

Sorry, I would like to correct it, the cycle which I explained some minutes ago is coffee, it's not food. Coffee is part of our food application center, but only one part.

So, food is composed by many more things like edible oils ingredients etcetera. So, on the coffee cycle I think I explained that some minutes ago, when it -- where it is, I would say the coffee cycle not the food cycle, but the coffee cycle I think it has path, it speaks for this time cycle and it even stayed a bit longer on the positive side as I explained.

When it comes to total food there is no specific cycle because it's a combination of many sub applications in the food application center, which have independent cycles and some of them are less cyclical than the coffee -- the instant coffee cycle.

Great. Thank you very much for the overview.

Good afternoon. Wanted to ask about some of the long-term margin trends.

If we look at these solutions, the EBITDA margin, it went up steadily for long time, if you get back to the old days when you had process engineering. You got to 11.2% in '14.

It looks like you’re going to be around about 8% currently and this is obviously a lot of gross margin business because it’s more project-based. What’s the long-term trends here.

Do you think the peak in 2014 was just a one-off peak because you had an unusually favorable market experience or can you get back to a double-digit margins over time assuming you have a more favorable market environment? And then the second and related question, if you look at all the issues you've been having over the last year or so with OneGEA obviously some of it is market, some of it is some technical issues of bottling, but a lot of it has been in internal organizational issues.

Do you think you've lost expertise and people and skills in things like project management as part of the OneGEA process which is going to be difficult to replicate and therefore it makes it more difficult to get margins especially by the project business back to where it was in the peak in 2014?

Coming back to the first part of your question, the peak margin at that time was process engineering. We will not see that in process solution or in the Business Area Solutions because Business Area Solutions also contains cooling solutions, which has never been at that peak level of what we at the all times caused PE division.

So, you cannot compare the business area with PE division and those margins we had at that time. But I also believe that the combination of the boom times in mainly in dairy and some other areas will be hard to be seen repeatedly in the next couple of years.

So, I personally believe if we still would have had PE type of business isolated with the same scope as in those days it would be hard to repeat because the pricing pressure from the PS at that time was less. The need of customers was desperate.

You may remember that in some calls I even mentioned that customers where ordering even without the quotation, just agreeing on a principle of cost plus et cetera. So those where the times where several top applications did boom.

Then the business – the part of cooling solutions has been suffering a lot in the last I would say five, six years on the margin because it's mainly related to energy, to oil and gas and to and in some areas also to chemical, but especially in the oil and gas business in the low end of technology et cetera. It has been suffering quite a lot on the margin, also last year.

And if you add this two together this brings us to the Business Area Solutions. The Business Area Solutions, our main focus is not the margin of course, it's an important thing that as you remember the main strength of the Business Area Solutions is the return of capital employed, the working capital and those type of operation and in the best times it was trading at negative working capital, today not because in both Business Area we have issues with the working capital.

But when we compared to the PS and you see that in most of the PS working capital or is also increasing it obviously has also something to do with the market. Our main goal for the Business Area Solution and its businesses is of course to have predictable margins that even more important than to achieve record margins and two is to make sure that the cash flow generation which is a very strong one from that Business Area stays as it is.

When it comes to the focus and the internal reorganizations, et cetera. Where do we have flow, scales may be in one or the other area you cannot exclude that.

When you have such a major reshuffling of the company, but I'm not so much concerned and that may more concern when it comes to the margin is the pressure from the outside because we have seen that some PS are putting more focus on this and focus means entering more solutions area, in order not to be exposed to unique component supplies. They are trying to offer now also more solutions and that of course naturally bring some more pressure to it and then we still have one of the main competitors in that area which is the American one I don't want to name it and when you see the results which also published a couple of days ago.

You can see that they are also willing to live with lower margin then in that area we have also the German competitor who is obviously also happy to live with quite low margin and in that environment, it will be difficult for our Business Area Solutions people to substantially increase the margin. So, to make it very short, the PE margins we had in ’14, I don't see that to be possible in the next four or five years.

And if I can just follow-up on that. When you talk about your competitors being more entering into the solutions market.

Again, today is still largely a mechanical business, you don’t have a loss in terms of software and control systems. Do you think you need to have a slight strategic change of direction and be more involved in automation and software control?

So, you can maybe escape a bit from the price competition from the more mechanical products?

We do have a lot in automation, I myself was surprised in one of the headcount we did about a year ago. We have almost 600 engineers doing automation and software to control plants.

So, I think that's one of our key strength actually besides it's more than designing pipes and layouts is programming the automation and to control and to steering of plant. So, I would like to mention it's because you're right, this is very important that we are at the higher end of the value chain making the intelligent things and not so much the pure let's say bending steel or bending pipes et cetera.

Good afternoon, gentlemen. I have a few remaining questions.

One is to better understand the EBITDA guidance. If I not taken you midpoint of €620 million and the deducted €57 million one-off and maybe €17 million for the bottling lines, which is somewhere between the €0 million and €20 million that you have to provision for in the rest of the year.

Then they get to an EBITDA, like we reported EBITDA of 546 for the year. I was wondering if that's a good number that you can live with.

Connected to this, I would like to better understand why the costs relating to the bottling line are now above the operating EBITDA which is making it an adjustment for an adjusted number already. So, I think it doesn't really add to any transparency and I think on transparency is something I think you should really focus on these days.

Maybe you can give some indication, why you do that? And then I finally on the operational excellence program, you have costs allocated for 2017 and ‘18 and also CapEx allotted to both years.

I would like to know if it relates to question already asked. But I would like to know number one, if you see zero costs related to the 2019, ‘20 and also I would like to know if that already includes redundancy payments.

You mentioned that you will not cut staff, but you will have to cut staff if you close a facility in Germany and reopen it in Brazil. So, I was wondering if those operational excellence costs are including redundancy payments for European work?

Thank you very much.

Let us try to answer one-by-one. Coming back to the transparency, you're right that of course, your right to demand transparency from the end that’s exactly why we did it, as we did it.

Just imagine we would have included just not delivering the transparency, the bottling thing which is a digital thing, it can be either €5 million or €20 million or whatever and it's quite digital. And then combine this with the guidance and make an overall all including guidance then the spread would have been quite big and you would have asked that, what does it need to get to the lower end or what does it need to get to the higher end and then we would have had to include -- explain to you that on one side you can include €5 million for the bottling thing, on the other side maybe €20 million or something like that.

So, it's exactly because we want to be more transparent that we have said these are two different things, specially also because the normal guidance the operational underline EBITDA is the one which is relevant for the midterm enterprise value where as the one off if you have contractual issues or a lawsuit case where you lose et cetera, that's a one off which has a cash impact and also of course then, due to the cash a certain impact on the share price. But it’s not something which you look -- should look and when you calculate the enterprise value for the eternity into the future.

That's why we have taken it into two pieces and that we could have said yes, all-inclusive the guidance is from here to there. Then the range would have been quite big.

People would have been wondering what -- why is that range so big and then we would have had the same discussion. We would have had to explain you that one inclusive and the other one that’s not one includes a lower number and the other one includes a bigger number.

With regard to the operational -- with regard to the EBITDA guidance, well, it depends very much on what you assume, what we will be achieving them. Is it more the lower end of the €573 million or €600 million or the upper end of the €633 in line with what we have displayed on our page 28.

It was I guess in our presentation then of course you need to deduct the P&L charges which we estimate for the year to be €57 million for the strategic projects which we might include here. And while depending where you are looking at and you can of course also model the midpoint.

So, the range will be between 560, 576 so to say.

I used only midpoint number here in this example. So, €17 million for the bottling project would be basically the midpoint between €7 million and €27 million, so €546 million.

So just to go back to the reporting lines. You say it’s the binary issue with clients come back to you or not, but what would prevent the client from going back to you and say, listen, there’s something wrong with that bottom line, I want you to fix it, and it comes at zero cost for the client.

Why would a client not come back to you to get it sorted especially since the client probably knows that you do sorted out for other clients?

Well, the levels we have now included in the June numbers, they do include, what we have already provided before that, include certain repair work and fixing work, but we don't know whether that is going to work at the end of the day. I mean, we need to do then the test when one line after the other comes into operation.

And in the best case and the good case which we’re targeting for, it works, a solution, if not, then we have to go back to the client to renegotiate the agreement. As I said, with two clients we have negotiated agreements on how we’re going to fix this.

With one client, we’re currently discussing. The other two clients, we have not yet even taken up the discuss because projects are in a very early stage.

So, it depends, first of all, can we prove that those taken remedies will work than I think the discussions will be much easier. Of course, if the remedies will not show that they work or they’re the solution for the problem, then we will have other discuss with the client.

And then with operating operation excellence program, the closure cost and redundancy cost, is that included in the €20 million and €25 million P&L or not yet?

What we have as action in there is, of course, considering all the potential cost related to reducing the number of people at a certain location, than I think later on at a different place, but once we have the strategic projects by now.

And do you expect no further cost for 2019, or do you think leveling out or a slowing down of these one-off cost? I mean, come from 57 this year 43, would it be prudent to assume maybe a €30 million charge related to IT and operational excellence in 2019?

I mean, as I said, we have a problem put into place, and this is the visibility we have right now. Looking forward on the [indiscernible], you’ll always have situations that you think about where you need to maybe do a sanction there or you need to invest in the certain technology.

But at the end of the day, I would say that the sentiment we have is that we should include that in the future in all guidance right from the get-go. And then we will tell you later on what maybe would have been special charges which we have swallowed.

Thank you very much for your help.

Yes, good afternoon. Thank you very much for taking my questions.

The first one would be on the statement that the PE margins from 2014 would not be possible in the next four to five years. And the first question on that is, has this changed your view on that since the past capital market stay?

Or is this something that was initially already baked in the projections you made when we talked past fall?

No, I think it has changed to a certain extent due to the arguments I mentioned also some minutes ago that we do see more PS going into the solutions. I'm trying to also [indiscernible] their products, and adjust their products, but also offering solution as a tool to sell their products which is, of course, not a good thing because if you use it as a tool to sell the product, then you’re happy with low margin.

In there, we also do see that in the largest application we have amongst the application centers, which is the dairy, we still see very difficult times as I just mentioned when it comes to the top line level of activities. So, there’s a combination of different reasons why we do believe that the market will not be as demanding and bullish as they were in 14 and maybe 1.5 years ago.

We were still think that's a bit more optimistic that we, yes, we have a downturn in Dairy, but maybe it's going to recover faster. Global economy and the environment of the peers is always changing, and it’s hard to predict peers is going to is going to behave two years from today's point of view into the future or three years into the future.

And does the statement nets all the cost saving initiatives or efficiency gain initiatives that you’re undertaking at the moment, or is this is an underlying you’d say business unchanged versus 2014. Just to be very precise on that remark.

I think the business environment is less favorable as it was in 2014. I mean, we also have quite strongly developing areas in the application centers of solutions.

But if you sum them all up, and if you look back at dairy, we are, to a certain extent, disappointed with the demand of the top line of the dairy, and dairy is the largest sub-application center among our six applications.

And could you remind us, you said you're working on the budget, and when you’ll present those? And also with regards to the mid-term targets, it’s probably going to be with the final results.

Is that what you had in mind when you said you’re working on a budget?

Yes. Usually we do, now the budget, and then we discuss it with the advisory board in December.

We freeze it, and as in the past, usually we have talked about guidance for the new budget when we announced the results in February or March.

Maybe a rather basic question because honestly, I'm still a little bit struggling in understanding the surprise drivers of the second quarter results. If I look at the group second quarter bridge for EBITDA year over year because it doesn't really tell me what your initial budget was and how the negative supply was in relation to that.

So, if you could really briefly in a few words comment on what the big key drivers are Q2 reported EBITDA versus your initial budget so I get a better feeling on what has been the real negative surprise here.

One big portion of it was, we had more SML cost increases that we assumed, and this costs of so called admin expenses. And we were hoping or planning to have a slightly higher share of the Business Area Solutions service parts, which has a very accretive margin.

And then, of course, the combination of some other things that you can see in the bridge, but this is actually what was a bit, big surprise.

But this is the more or less -- is it fair to say that the year over year bridge is rather good reflection of what the disappointment was versus budget? Or is there any major differences from that perspective?

I would say that at the end of the day, we have no quarterly budget down to the bottom line. Yes, we have them lined on the topline, but have no quarterly budget.

But at the end of the day, I would say the first two quarters of the year 2016 were strong. And that was also the underlying assumption that we could deliver on that level if you based it on the budget expectation.

So, this is why I’d join you in your view.

And maybe one final follow-up on the solutions side maybe because we don't have a separate bridge, and that seems to be the major disappointment driver. If you take the two €27 million decline year over year, and we deduct roughly €5 million for the bottling, another €5 million maybe for the admin expenses that you just mentioned, and the top line for rather 30 million, if I apply 10% margin, so I end up with roughly €15 million left although which I have to split between the other expenses that you mentioned.

Of course, there will be rightfully something in there from the solution side as well. But this is still a very big number roughly, the 15 million on a 30 million revenue decline.

Could you help us what I mean how margin accretive are these services business, what is the reason for the short-term disappointment under them because this is a rather not so lumpy usually. And in this context, you mentioned it came in much, much lower.

The customers walk away to have service for somebody else. What happened?

And is this business coming back? I mean, that’d be rather helpful in better understanding what is going on.

I mean, there’s no simple to that. First of all, please keep in mind that that's relevance for the service.

You rightly can, of course, say that should not be a surprise. But Q2 had I think 4% less working days than Q2 last year because of the combination of first of May and Easter in Q2.

You, of course, could say that there cannot be a surprise. But when you compare to previous year for the service, you should see.

And then also in the solution service business, that's not a spare part business, a classical spare part business which is basically a daily or an hourly basis. These are small project, and sometimes you have more in the last month, sometimes you have less.

We are not concerned about the overall performance of the solution service, it's just the timing thing and combining with a very strong, as I said last week, very strong month of June which the organization was not able to repeat in the top line of the service business. And you asked about the accretiveness of the service business solutions, it’s very accretive because the gross margins of the service business, we are not disclosing it, but it’s substantially about the new equipment margin.

And then as you also pointed out that we have in the solutions area, of course, it’s the thing in some of the SG8 higher unexpected etcetera. So, it’s a combination of those thing.

It’s not that we are now disappointed again about solutions. I think on the other side, in the new equipment, we could feel that they’re [indiscernible] on the margin.

So, it’s not coming from there. The other points which you yourself addressed in combination with unfortunate timing when it comes to the service.

Well, both service caught due to the very short working days compared to previous year.

What you need to consider is that short-term, the bulk of the volume reduction goes into gross profit not in the gross margin because you cannot adjust short-term capacities. And this is why you have a high impact on the gross margin coupled with the effect of the special project situation, ABS.

That’s very helpful. Thank you for that comment.

But if you assume in your new guidance that the cross margin of H1 is an indication for H2, you’ll implicitly assume that part of these delays was sustained in the second half. Will they also spill over into the next fiscal, or is this something you would expect to totally reverse?

Sorry, delays? You mentioned about delays or what?

I mean, in your assumption for the full fiscal year, taking the gross margin from the first half which has baked in these issues that you just mentioned. When you said they are rather temporary, so you kind of just implicitly assumed they will reoccur in the second half.

But of my question is, is this going to last beyond '17, or is this just something that you would see for the very near term?

As I said, from the application, the gross margin was stable. And for our low-end guidance which we explained last week, we assumed just the same margin.

What the margins should be and will be next year, let us come back on that when we present the budget. For the forecasting of this year’s performance, we assumed for the lower end that the gross margin of the new equipment applications service project, of course, is at the same level as we have it now in the first six month.

All right. And maybe one very last question from my side.

On the GAAP and other reconciliation, we touched upon this point already during last call, but I still struggle a little bit to understand why it sequentially turned so materially negative. Is there any incremental information you can give on the past call on what was the driver behind this decline?

The main driver behind this decline is simply the fact that in every second quarter of a financial year, we do the entire company charges which we charge to the business areas based on services and based on trademark. And this tool then then generated the situation in the second quarter that we had a higher loss there in that quarter compared to other quarters.

This is why I said don't extrapolate that for the full year. At the end of the year, it will be in the range in that line of about minus 15 or 16.

That's the best guess at today.

If I could add, just because you try to extrapolate to understand, the development of the EBITDA solution, and if I remember correctly you assumed if you multiply margin of 10% with the volume, then you have to drop through. That, of course, is not correct because it depends on how you make it, but if you do it on the total cost for month, you would have to multiply a Euro missing phase volume in the business center solutions with roughly 40%.

That’s the drop through which goes into the EBITDA because we're not, from one quarter to the other, we’re not able to adjust the overhead and the personnel cost to missing €1 million sales. So, if you have 20 million less sales, then the drop through is something around 8 million, something like that.

Thank you very much for the clarification. That is very helpful.

Yes, good afternoon, gentlemen. One follow-up question I also have on solutions.

Last year you indicated not only the bottling project but also many or some projects being delayed by customer induced delays and you wanted to catch up with those projects. Can you give an update where we stand here, how much has been catch up so far in '17, and how much we will see in '18?

It depends on how you define catch up, but we do see that those projects which we did mention in the Q3 call last year have come back into a normal execution. Which means according to the project, there has been no further delays induced by the outside or major delays.

So, they are back to normalization. As we’ve said, a part of a larger project was cancelled.

That, of course, has not come back. That still stands where it is.

So, we’re much more back to normal when it comes to customer induced delays. And therefore, the execution is now according to the new milestone plans which we had to revise in Q3.

Then one follow-up question. So, on your IT systems, [indiscernible] you will transfer much of the new IT into the cloud which I believe should give you at least some cost savings.

So that’s what I’m still wondering why there shouldn’t be any return on the investment. I mean 200 million CapEx and charges is quite massive for a group of the size of GEA for new IT without any return.

As I said, there will be a return, but that will kick only later once we’ve fully executed that and not for now in this year. And please, you might forsake that outsourcing into the cloud is just replacing our own networks and our own backups and storage devices by something which is operated from a third-party.

And that, of course, then frees up that we don't need to invest anymore. And I expect that to be mid-term and also better operated and more productive, and better in performance and what we could.

But this is something which we’ll gradually develop over time. And it’s hard to give you a fun payback that would tell you, well, it's already in 2017 or 2018 that payback.

Okay, thank you.

Hi, thanks for taking my question. Just two from me.

If I could start with just clarifying the cash flow driver margin target. So, the ad hoc released last week was clear that the 8.5 to 9.5% was now before additional cost in bottling.

And looking at slide 27 now, it says that there is no deterioration despite the bottling impact. So, it looks like that is an upgrade, albeit a small one.

But I was just wondering what has changed in last week that caused that slight change to your definition.

Yes, your observation is right. Maybe we’re talking last week to you, we had only early numbers and now we have more details on working capital now developed and what we believe it could still afford for the remainder of the year.

And that made us believing that despite the additional charges, we can keep the case flow driver guidance in the range in the 8.5% to 9.5% and if you then go into the additional financial information on Page 29, you would see that in particular we've lowered the guidance range for the working capital down to 15.7% to 16.2% previously up to 16.7%.

Right thanks. So that's clear.

And just a separate questions, I was looking at Slides 8 and 9, there is quite a lot of public complex work to the done. Now is there any potential impact on operations if there were to be a hiccup in this process?

Or is it simply focused on how the finance team can receive and analyze data? I guess, where I'm coming from is thinking last year, in the move to shared service centers, and there's a problem at invoicing where there was a delay.

Is there a potential for similar operation hiccup as a result of what you're doing? And how are you mitigating that?

No. That has nothing to do with the shared service operation that is how we analyze, control and manage the company and this is – a lot of that is done manually now with a lot of extra effort by our people which they need to spend so that we already now see the first results of this transition and the plan here going forward is that we automate it and get what quality into the data and have a stabilized process.

Right. Okay.

So, in terms of the day-to-day running of the business, I mean if there is a, I don't know, a delay or there's a problem with this process...

Donat said at the beginning of the call that we postpone a little bit the quarter fee because all of this work is done manually and we wait for more intelligence on the number of every quarter. This is we have postponed it a little bit.

That is the implication which we have and of course we have not all granularities available now. So, there will be a ramp up with further details and more information we can develop throughout the year 2018 into the year 2019.

But basic set we have available all right now.

Right. Okay.

Thanks.

Yeah. Thank you very much.

I hope that you got in addition to last week's calls some additional information and if you have further questions, of course we would be more than happy to answer them. You know how to get in contact with our IR and communications teams here in this regard and thanks for your patience and we think will talk in some of the road shows etcetera in coming now in the next couple of days and weeks.

Thank you very much.