Food solution integration costs hit otherwise satisfactory GEA Q1 results

Net profit for Q1 2012 for the Germany-based processing equipment giant plummeted to €12.7m – compared to almost €40m in the same period in the previous year.

But the company hailed a near 25% jump in its order intake – which saw the figure rise to over €1.5bn for the first three months of the year. Consolidated revenue also rose by over 20% to €1.27bn.

Food solution integration costs​

The only downside to the robust results was €36m in non-recurring costs recorded against its recently acquired Food Solutions division as GEA integrated the business, bought at the end of 2010 from a private equity outfit, into its structure.

A company spokeswoman told FoodProductionDaily.com the majority of this amount was attributable to a change in the way its returns were recorded into GEA’s account. However, the firm acknowledged that the unit had recorded a €9m loss in operating EBIT.

GEA cited weak order execution and quality issues leading to cost overruns as well as the need to outsource materials following a planned plant closure. This had triggered to supply-chain problems, the hampering of shipments and necessity for “expensive work-arounds”,​ said the firm.

A further issue was idle capacity at one plant - although the spokeswoman said the facility was a relatively minor one with annual revenues reaching €10m.

“We beleive these are one-off costs and will not roccur in upcoming quarters. Underlying trends and fundamentals for the business remain strong, which is why we are satisfied with these results,”​ she added.

Mega drivers​

The company highlighted megatrends such as the rising world population, increasing urbanisation and the strong emergence of middles classes in emerging markets as still be the major drivers for growth of the business.

“​The ongoing strong demand for food processing technology worldwide is the main reason for our order intake’s encouraging development,”​ said Jurg Oleas, company executive board chairman. “​This is why the food and beverage sector expanded by 38%, increasing its share of GEA’s business to more than 55%. Small orders with a volume of less than EUR 1 million also contributed in particular to this increase, exceeding the threshold of €1bn for the first time in Q1.”​

Outlook​

GEA forecast steady growth in order intake and sales of around 5% for the remainder of 2012. Operating EBIT margin would remain stable compared to 2011 at just under 10%, said the spokeswoman.