GEA Group AG (G1A.DE), a leading technology supplier for the food processing industry, reported mixed results in the first quarter of 2024.
The company saw a 13.6% decline in order intake compared to the previous year, largely due to postponed orders. However, GEA Group experienced a 2.7% increase in organic sales and a notable rise in EBITDA margin from 13.5% in Q1 of the previous year to 14.5% in Q1 2024.
Additionally, the company announced a share buyback program and received shareholder approval for its climate transition plan. Despite market challenges, GEA Group remains confident in its profitable growth journey.
Key Takeaways
- GEA Group's order intake fell by 13.6% due to delays, but organic sales grew by 2.7%.
- EBITDA margin improved to 14.5%, and a share buyback program was announced.
- Service sales share hit a record 26.9%, with a significant increase in the Food & Healthcare Technologies (FHT) segment.
- The company confirmed its full-year 2024 guidance, expecting organic sales growth between 2% and 4%.
- Net working capital rose to €457 million, and free cash flow was negative at minus €57 million.
- GEA Group will host a site visit at innocent's carbon neutral juice production plant and has scheduled its Q2 figures release and Capital Markets Day.
Company Outlook
- GEA Group is optimistic about the second half of the year, expecting a positive impact from potential interest rate decreases on order intake.
- The company maintains its full-year 2024 guidance with expected organic sales growth and EBITDA margin expansion.
- M&A strategy focuses on successful acquisitions, with share buybacks as an alternative if suitable targets are not found.
Bearish Highlights
- IT issues with a new logistics partner led to order fulfillment delays and a €10 million impact on EBITDA.
- Negative free cash flow reported at minus €57 million, with an increased net working capital requirement.
Bullish Highlights
- Significant EBITDA margin improvement in the Farm Technologies and Heating & Refrigeration Technologies segments.
- Strong service sales growth, particularly in the FHT segment, with organic service sales growth of 8.8%.
Misses
- Despite overall growth, the FHT segment experienced a 2.6% decrease in sales year-over-year.
- The company declined to provide specific details on profitability in the service business.
Q&A Highlights
- The company is addressing issues in the FHT segment and expects better profitability and sales growth.
- GEA Group is executing price increases continuously across different areas to improve margins.
- No cancellations in the LPT business were reported, and the company is managing identified issues in the FHT segment.
In summary, GEA Group AG's first quarter of 2024 was a blend of challenges and progress, marked by a decline in order intake but an increase in organic sales and EBITDA margin.
The company's proactive measures, including a share buyback program and a focus on service sales, position it on a confident path for the remainder of the year.
Despite some operational hurdles, GEA Group's reaffirmation of its full-year guidance reflects its optimism and strategic focus on profitable growth.
Full transcript - None (GEAGF) Q1 2024:
Oliver Luckenbach: Good afternoon, ladies and gentlemen, and thank you for joining us today for our first quarter 2024 earnings conference call. With me on the call are Stefan Klebert, our CEO, and Bernd Brinker, our CFO. Stefan will begin today call with the highlights of the first quarter. Bernd will then cover the business and financial review before Stefan takes over again for the outlook 2024. Afterwards, up the call for the Q&A session. Please be aware of the cautionary language that is included in our Safe Harbor statement as in the material that we have distributed today. And with that, I hand over to Stefan.
Stefan Klebert: Thank you very much, Oliver. And good afternoon, everybody. It's my pleasure to welcome you to our conference call today. Before I start with the highlights of the first quarter, I would like to congratulate Bernd to his contract extension. I'm sure you have read that. Last week, the supervisory board has decided to extend the appointment of Bernd as chief financial officer until end of June 27. I'm very pleased for this decision. And dear Bernd, I'm very much looking forward to continuing our excellent working relationship. The market environment in the first quarter of 2024 has not materially changed since the last quarter of 2023. We are still facing high interest rates, negative FX development, and geopolitical uncertainties. But once again, we have delivered organic sales growth and a strong EBITDA margin expansion. We have continued our profitable growth journey. In our last conference call, we indicated that order intake in the first quarter of 2024 will not match last year's record order intake in Q1, which was almost at €1.6 billion. The current decline in Q1 is therefore in line with our expectations. And since we are still seeing postponements of orders, order intake declined organically by 9.7%. On a reported basis, this decrease has been at 13.6% because of negative currency translation effects. However, sales rose organically by 2.7%, in line with our full year guidance of 2% to 4% organic sales growth. EBITDA before restructuring expenses increased by 5.1% year-over-year to €181 million despite lower sales. The corresponding EBITDA margin rose significantly by 103 basis points from 13.5% in Q1 2023 to 14.5% in Q1 2024. Return on capital employed decreased slightly by 0.8 percent point to 32.3%, which is, however, still an excellent value. Let me now provide you with an update on our share buyback program. As you know, this program amounts to up to €400 million, will run until early 2025. The first launch of the program with a volume of €150 million was launched on 9th of November and is supposed to run for six months. Until 31st of March, we already bought back 3.1 million shares worth €1,111 million in total. As of May 7, though the most up-to-date figure, we have already repurchased 3.8 million shares and spent €135 million. This means that we are approaching the end of the first tranche. As there are just €15 million left to be spent under the first tranche, it is clear that we have completed this tranche soon. And we will, as you might have read, start soon with a second tranche with a volume of €250 million. GEA is clearly a sustainability pioneer, and we have underpinned this role once more by being the first member of the DAX Index family to conduct a say on climate vote. At our general meeting, which took place last week, we gave our shareholders a say on our climate protection activities. More specifically, we asked them to approve our climate transition plan 2040 as part of a consultative vote. And the result was outstanding. 98.44% of our shareholders approved our plan. This is an outstanding achievement and confirms that our shareholders support our transformation to a net zero company. We firmly believe that climate action is not only urgently called for, but also pays off economically. Only companies that consistently act sustainably can remain competitive in the long term. With that statement, I hand over to Bernd.
Bernd Brinker: Thank you, Stefan. Good afternoon, ladies and gentlemen. On the back of the record order intake in last year's Q of almost €1.6 billion, the order intake declined as expected year-over-year by 13.6% to €1.37 billion in Q1 2024. But important to notice that it improved sequentially from the levels seen in Q3 and Q4 last year. Despite a good project pipeline, postponements of orders, and here especially large orders, continued. Two large orders with a total value of €51 million were received in this quarter in comparison to five large orders totaling €126 million in Q1 2023. Q1 2024 was another quarter of attractive profitable growth. Sales was up by 2.7% year-over-year on an organic basis. This was driven by strong organic service sales, while organic new machine sales slightly declined. EBITDA before restructuring margin increased by 103 basis points to 14.5% because of a higher gross profit and lower operating costs. Return on capital employed declined slightly from a very high level of 33.1% to 32.3% since the improvement in EBIT before restructuring expenses wasn't enough to compensate for the higher capital employed, resulting from an increase, especially in net working capital. Net liquidity decreased year-over-year by €56 million to €218 million. Please bear in mind that we invested €111 million in the first tranche of our share buyback program. Looking a bit into the group performance. Similar to the last quarter, the top line of Q1, I am talking about order intake and sales, was adversely impacted by translational FX effects due to a strong euro against some of our main currencies. Order intake was negatively impacted by €62 million translational FX effect, which together with a lower amount of orders, above €5 million, explains most of the year-over-year decline. Food & Healthcare technologies has been reporting an organic order intake growth, while the other divisions saw a decline on the back of a very strong, in many cases even record, prior-year quarter. From a customer industry perspective, food and, once again, pharma were growing. When we look at the sequential order intake development, there are two messages. First message, order intake in Q1 2024 was up by more than €100 million quarter-on-quarter. Second, all order size brackets showed a positive sequential development. Sales grew organically by 2.7%, driven by once again strong organic service sales growth of 9% year-over-year, to which all divisions contributed. This is now the 15th consecutive quarter with organic service sales growth. New machine sales, however, have been muted, declining organically by 1.1% year-over-year in the quarter. The divisional performance has been a bit mixed here. While the new machine business at Separation & Flow, Farm, and Heating & Refrigeration Technologies has been growing nicely organically, liquid and powder as well as health care technologies reported a decline. Due to the strong service sales growth, the service sales share stood at 38%, 1 percentage point higher than last year. This service sales share marks a new record level. EBITDA before restructuring expenses rose by €9 million to €181 million, resulting in a corresponding year-over-year margin expansion of 3 basis points to 14.5%. Now, let me continue with the figures for the division, Separation & Flow Technologies, which reported solid organic sales growth and significant EBITDA margin improvement. On the back of a record order intake in Q1 2023, the order intake decreased organically by 5.3% year-over-year. Please mind that the prior-year quarter contained a large order of €24 million in chemicals for lithium processing equipment. Therefore, the year-over-year decline is mainly resulting from the customer industries chemical and dairy processing, while food and beverage were growing. When looking at the order intake development on a reported basis, an adverse translational FX impact of €31 million is to be considered. Organic sales grew by 5.2% year-over-year, driven by solid growth rates in both new machine as well as service sales. The organic service sales growth would have been, however, higher if we hadn't had a change of a logistics provider as part of our move into a new logistics center. Problems that occurred during this change were caused by our partner and led to a temporarily slower service sales recognition in Q1, with postponements to the coming quarters, predominantly to the second quarter 2024. The order intake in service, however, has been growing year-over-year. As a result of the temporarily lower service sales growth, the service sales share declined on a very high level by 1.5% to 42% in the quarter. This is expected to positively reverse already in Q2 2024. The profitability impact resulting from the lower service sales share has been offset by a scheduled sale of a property in the United States. As a result, EBITDA before restructuring expenses increased by €2 million to €96 million and the corresponding EBITDA margin improved further on a high level by 1.5 percentage points to 27%. Let's move on to Liquid & Powder Technologies. Order intake for the quarter was down organically by 21.6% compared to a strong prior year's quarter, mainly driven by a decline in orders above €15 million. Liquid & Powder Technologies has received one large order of €31 million euro from the customer industry beverage this quarter versus four large orders of €102 million in Q1 2023. While the customer industries food and pharma showed a positive development in this quarter, all other industries reported a decline. Important to notice that the order intake has stabilized sequentially, being up from the level in Q4 last year. Sales declined slightly by 0.7% year-over-year on an organic basis. Service sales continued its strong growth trajectory of the previous quarters with an outstanding 15.7% year-over-year organic growth rate, marking now the fifth quarter in a row with double-digit service growth rates. At the same time, organic new machines decreased by 5.7%. The lower new machine sales results from a decline in the order intake in the second half of 2023, as well as in the first three months of 2024. Due to the strong service sales growth, the service sales share increased by 3.6 percentage points to a record level of 26.9% in the quarter. EBITDA before restructuring expenses decreased by €4 million year-over-year to €26 million, resulting in a corresponding EBITDA margin of 6.8%, down from 7.8% in Q1 2023. Slightly higher gross profit resulting from the improved service sales share has not been enough to compensate for the increase in operating costs. Continuing with Food & Healthcare Technologies. Order intake for the quarter was up in organic as well as in reported terms, which is a very encouraging development. The year-over-year growth was driven by orders below €1 million and a large order of €20 million in the customer industry pharma. Not surprisingly, the customer industry pharma showed a positive development this year, while the food industry reported a decline. Sales decreased by 2.6% year-over-year, despite a very strong organic service sales growth of 8.8%. The service business has been growing organically by 15 quarters in a row now, raising the service share from 27% in Q3 2020 to 36% in the first quarter of 2024. The new machine sales declined organically by 8.1%, resulting from the lower order intake in freezers, as well as in processing lines for the food industry in the second half of 2023. As you know, the profitability of Food & Healthcare Technologies had been impacted by the execution of insufficiently priced projects in the last quarters. And as expected, we are still seeing a small impact in Q1. EBITDA before restructuring expenses by €3 million year-over-year and the respective margin dropped from 10.4% in Q1 2023 to 9.5% in the quarter. However, when we're looking at it sequentially, the profitability has improved continuously since the second quarter of 2023. While the EBITDA margin has been as low as 6.1% in Q2 2023, we reported a quarter-on-quarter improvement to 6.8%, followed by 7.2% in Q4, and now 9.5% in the first quarter of 2024. As stated in previous conference calls, we are optimistic to bring the business back on track within the second half of 2024, and we are targeting for the full year and EBITDA margin between 9.5% and 11.5%, a strong improvement compared to the 7.6% in financial year 2023. Moving to Farm Technologies. The first quarter of the year is showing strong organic sales generation and significant EBITDA margin expansion. But let me give you some details on Q1 here. As you might remember, we have stated several times that the environment for our dairy farming business is quite mixed. On the one hand, the farmers are facing higher financing costs. But on the other hand, there is this unbroken trend for automatization and consolidation. On the back of a record level for orders in the prior-year quarter, order intake declined organically by 14.7% year-over-year. Also sequentially, the typical quarter-on-quarter improvement from Q4 to Q1 has been less pronounced as the years before, and the market sentiment is still affected by the uncertainty mainly caused by high interest rates and lack of subsidies, which are now expected for the second half of 2024, but also by the very wet weather conditions in large parts of Europe. In terms of products, Farm Technologies had slight order intake growth year-over-year in the service business. while new machine order intake declined, especially in manure and automated milking consoles due to the lack of larger orders. When looking at the order intake development on a reported basis, an adverse translational FX impact of €70 million needs to be considered. Sales has been virtually unchanged in reported terms, but increased organically by 10.4% year-on-year. The strong organic sales growth has been driven by both outstanding service sales growth of 14% and strong new machine sales growth of 7%. The service share increased further on a high level by 0.3 percentage points to 47.8%. Gross profit rose significantly due to the consistent implementation of price increases in the last month and a high service sales share. The increase in gross profit overcompensated higher operating costs, resulting in an EBITDA improvement of €4 million to €27 million in the quarter. The corresponding EBITDA margin increased significantly by 198 basis points from 12.5% in Q1 2023 to 14.5% in Q1 2024. Finally, let us turn to Heating & Refrigeration Technologies. This division delivered, again, strong organic sales growth and a significant EBITDA improvement. Also, Heating & Refrigeration Technologies faced a high comparison base for order intake in the first quarter of the year because the prior year quarter had an unusual high volume of orders above €5 million. The year-over-year organic order intake decline of 11.6% was purely driven by the reduction of these large orders. Base orders, that means orders below €5 million euro, have been up year-over-year. In terms of customer industries, food had a good demand, while most other industries reported a decline. Sales continued its growth trajectory, and the division reported for the 11th quarter in a row a year-over-year organic growth. That 8% organic growth rate was driven by both solid new machine sales growth rate of 4.2% and a strong service sales growth rate of 8.4%. Since the service business was growing stronger, the service sales share increased by 82 basis points to 39.2%. EBITDA rose to €19 million and the according margin improved significantly from 11.8% in the Q1 2023 to now 13.4% this quarter. Gross profit was up year-over-year due to the higher volume, positive mix, and margin effects, which overcompensated the increase in operating costs. Closing the divisional chapter now with the overview on the EBITDA growth contribution. There are two important messages. We have been able to increase our EBITDA before restructuring expenses by €9 million. The positive EBITDA growth contribution of Separation & Flow, Farm, and Heating & Refrigeration Technologies overcompensated the profitability decline of the two other divisions. This shows once again the resilience and strength of our business model due to our product diversification. Let me give you some additional background information on the positive EBITDA growth contribution from the other and consolidation line. The year-over-year change in EBITDA is mainly attributable to the allocation of centrally incurred expenses in line with causation, leading to a higher cost burden on the divisions. And the second important message is that translational FX has been a drag on our reported EBITDA. It has lowered our EBITDA by €6 million in the quarter. Excluding this FX translational effect, our EBITDA would have improved by €14 million, €172 million in Q1 2023, €186 million in Q1 2024. Coming now to another important topic, which is net working capital. As in the last years, the first quarter is showing the typical seasonal uptick in net working capital from year-end. This quarter-on-quarter increase is driven by a reduction in trade payables, as well as a slight increase in inventories. In a year-over-year comparison, net working capital increased by €88 million to €457 million, despite a significant reduction in inventories of €64 million. Trade receivables have increased, which is not surprising to see as we are facing a tougher economic environment for receivables management due to the higher interest rates. The decrease of trade payables needs to be seen in connection with the reduction of inventories. In Q1 2023, the inventory level was on a high level due to the creation of risk buffers to mitigate the potential risk of material shortages. The subsequent reduction of inventory, especially at Liquid & Powder Technologies and Food & Healthcare Technologies, led to a decrease of trade payables between Q1 2023 and Q1 2024. This development is well covered by our guided corridor of 8% to 10% as the net working capital to sales ratio landed at 8.6%. Like in the previous years, free cash flow has been negative in the first quarter of the year. But let's have a look at the details. Operating cash flow was negative €42 million, which can be explained by the following factors. Firstly, the net working capital outflow because of the quarter-on-quarter build up. Secondly, the €82 million outflow in others. This position contained the outflow of bonus payments for fiscal year 2023 which was, as you all know, again, a very successful year. In addition, we paid out the second and final tranche of the inflation compensation payment to all employees in Germany, which accounted for roughly €10 million. The CapEx-related outflow of €27 million has been rather low in comparison to our full year 2024 guidance of around €260 million. So the step-up will be seen in the coming quarters. As a result, free cash flow stands at minus €57 million, leading to a net cash flow of minus €78 million euro after deducting lease payments and interest paid. The negative net cash flow, in combination with the cash out, for our ongoing share buyback program reduced the net cash position from €371 million at the end of Q4 2023 to €280 million at the end of Q1 2024. Hence, the typical seasonal net cash reduction in the first quarter of the year has been more pronounced this year due to the additional cash outflow for the share buyback program. With that, I hand back to Stefan for the outlook.
Stefan Klebert: Thank you, Bernd. Let me now come to our outlook for the fiscal year 2024. After a solid start into the year with further organic sales growth and excellent margin development, we confirm our full-year 2024 guidance. Organic sales growth of between 2% and 4% and EBITDA margin expansion to a level between 14.5% and 14.8% and a return on capital employed in the range of 29% to 34%. In our last conference call, I mentioned that we will hold our next Capital Markets Day on 1st and 2nd of October. Let me now share some more details with you. On the evening of October 1st, we will invite you to an informal dinner at Ron's Gastrobar in Amsterdam. Ron's Gastrobar is known for its culinary entrepreneurial dishes and we are looking forward to spending a nice evening with you there. Amongst other things, we will serve new food, which is produced by our customers. The next day will consist of two parts, first presentations on strategic topics held by my colleagues and myself in the morning, and second in the afternoon, a site visit at our customer innocent in Rotterdam. As you know, we have built the world's first carbon neutral juice production plant for them at the harbor in Rotterdam. And we are offering you the opportunity to see our machines and engineering solutions live in action on their premises. The formal invitation to the event will follow in due course. Finally, our roadmap 2024, the next important date will be the release of our Q2 figures on August 7 and then our Capital Markets Day on 1st and 2nd of October in Amsterdam and Rotterdam, we are looking forward to see you there. This concludes my presentation and I hand back to Oliver for the Q&A session.
Oliver Luckenbach: Yeah. Thank you very much, Stefan and Bernd. And over to you, Sarah. And please be so kind and open up the lines for the Q&A.
Operator: [Operator Instructions]. We will now take our first question. This is from the line of Klas Bergelind from Citi.
Klas Bergelind: First on the real estate gain, I think it was €10 million in SFT, but which against temporary lower service growth, was – there was a €10 million hit to EBITDA from lower service growth. I'm trying to understand this better because I struggle a bit to see it as a wash. On my math, it would have meant that the underlying growth in service must have been 15%, 16% with a drop through of around 60% on the last volume. Totally understand that the drop through is always higher in service, given that you have more amount of people there, but still pretty big numbers. Or put differently, the 15% to 16% is actually quite high. It can slow down in service growth throughout last year, I thought more like 8% to 10%. So, sorry, a lot of details, but I just want to understand this better, how it could be a wash.
Bernd Brinker: I think this all goes around the question of profitability in the service business. And I think, as you will not be surprised to hear us saying that we don't provide further information on profitability of the service business. Can we confirm that, on the one hand side, we had the income from the real estate sale and this was wash with the business which we didn't form in the Q1 as part of the change in the logistics center and we expect this service revenues to crystallize predominantly in Q2 2024 and we will see also the profit contribution of this element in Q2 2024 to the majority. So, therefore, this will come later. There is a wash on the hand between the missed revenues so far and real estate sales. Sorry, not giving you more indications here.
Klas Bergelind: I totally get that the service margin is much higher, but just to keep it simple, can you give us the underlying service growth perhaps? What would the service growth have been?
Bernd Brinker: Nice question, Lars, but I will not provide more details on that.
Klas Bergelind: Then quickly on the corporate line of €10 million versus what I thought was more like a mid-teens level, these costs, as you say Berndt, are now at a divisional level. Was [indiscernible] this quarter or should we model the corporate line at around €10 million per quarter for the rest of the year?
Bernd Brinker: So we have given an indication as part of our outlook early this year, let's say, for the line of other and consolidation. We indicated that we expect an EBITDA margin of negative 1% to negative 1.5%. What I can indicate to you is it will be on the lower end of this range. So you should expect roughly negative 1% as part of this EBITDA line for others and consolidation. So it will be a little bit more than the €10 million per quarter, but it will be on the lower end of the range.
Klas Bergelind: My very final one for you, Stefan, on the orders. It seems like we have this seasonality with orders improving first quarter over fourth quarter, but at the same time, I think the message from you today is that you see the second half of last year as the trough for orders. Does that mean that you think sort of the €1.3 billion, €1.4 billion is sort of the new level as we go through the year when you think about the pipeline, the conversions? And is there any end market where you feel things could perhaps improve quicker than others coming back to the dairy side, for example, given the outlook for improved subsidies, etc.
Stefan Klebert: Like also Bernd mentioned in his speech, I think if you look at the last quarters, we can see that sequentially we are picking up again order intake. So we are also having an interesting and full pipeline also of large projects. However, this is also nothing new. So far, we saw a certain postponement of these large orders. I would say if we look out into the economy and to the situation at the interest rates, we expect that there is definitely the peak, that we also might see interest rates coming down. And I'm quite optimistic that this also will have an impact in the near future on our order intake situation and that we will see continuously improving situation during the year when it comes to order intake.
Operator: We will now take our next question. This is from the line of Sven Weier from UBS.
Sven Weier: The first one is also regarding the order outlook. And I guess in the past, you've also made that a bit more rate-sensitive and dependent on rates coming down in the second half. I was just wondering how rate sensitive is it really to begin with because, I guess, in the US the rates don't come down as much. There is also an economic reason for that. And so, customers might be doing better than you would have thought. Is not the need to invest more pressing than maybe having a quarter point interest rate at the end of the day? And so, the second half is not so dependent on what the Fed does specifically?
Stefan Klebert: Very good question, Sven, but my answer would be 50% of economy psychology. And that has not only to do with the pure facts, but we see that a lot of customers have been not sure how everything is continuing with all this volatility in the world. And if we get a situation which is a bit more stable and interest rates are coming down a little bit, I personally expect that this will also change the mood and the courage to invest more again. And that is maybe more important than the pure fact our interest rates are down by 10 basis points or whatever or 100 basis points.
Sven Weier: And just to make sure I got this right when you just said to the last question around the – it will get better every quarter now. Is it kind of a sequential comment? You're comparing this to Q1 or is it as previously a year-on-year comment? Just to get this right, yeah.
Stefan Klebert: I think I'm quite optimistic that we can see quite solid Q2 in order intake. I also can say that it started quite well. And, yeah, that is my comment. We are still living in a volatile world, but we see that things somehow are moving in the right direction and the situation is a bit more bullish than we saw it in the last six months, let's say like that.
Sven Weier: My final question is just on the topic of M&A, which I guess will also be again a topic at the Capital Markets Day. But it's probably fair to say that, in the last couple of years, things have been tough, things not available, things too expensive. And I guess that doesn't really change. Does that change any how you're thinking around capital allocation in general and just giving more importance also to the topic of buybacks? Or do you think the capital allocation is something that shouldn't change too much for the next CMD?
Stefan Klebert: I think you are completely right. It was challenging in the last year to find the right targets. We made some smaller acquisitions, like you know, but it's often that we stop talking to potential targets. You can be sure that, every month, I have minimum one or two meetings with potential targets, which we look at. And sometimes it's not the right company. Sometimes it's not the right time. But later, I'm quite sure that we will also make something here. And if we will not be successful, let's say like that, in finding the right target for the right price in the next year or next two years, then, of course, we also need to think about capital allocation. And we might think about what is then the right allocation, like we do at the moment with share buyback and then we might continue to do something like that, don't have any other ideas, or maybe we have other ideas. But it's something where I cannot tell you exactly what is going to happen in the next one or two years, because this depends heavily on the question, can we be successful in finding right targets or finding the right companies or the right buyers? But we are still active in that area, and we still talk frequently and often to potential targets. But as I always said, we don't want to do any stupid things. When we do something, it should be very clear that this will be a success story, that the price is the right one, that the markets are the right one. We have a company we can trust on.
Operator: [Operator Instructions]. We will now take our next question. This is from the line of Sebastian Künne from RBC Capital Markets.
Sebastian Künne: My first relates to Liquid & Powder Technologies where you have decent revenues, you have a nice shift towards services and also a higher gross margin. But at the same time, you talk about higher operating costs. And I was wondering what's behind that. I think we should expect going forward that maybe capacity utilization is not as good or pricing is coming back a little. What's the reason behind the drop? That would be my first question.
Stefan Klebert: Sebastian, I think with regard to Liquid & Powder Technologies, the main thing here for us is coverage of capacity by sufficient order intake. And as you've seen, the order intake is on a low level. Also, organic sales growth is slightly down. So therefore, it's a question of adjusting capacities. And so, therefore, operating costs – managing operating costs is in the center of our activities. We have already adjusted it as part of some activities at the end of last year. And we need to carefully consider whether we need to adjust further.
Sebastian Künne: So, there are some costs potentially coming in the next quarter from that.
Stefan Klebert: No, I would not expect that. I would not expect that. Whenever we do adaptations, let's say, we can do it with a normal fluctuation here or with nothing on top which you would need to think about. My second question is on something that Klaus already addressed. It would be good if you could give a bit more detail on this. And this, on the SFT, on the gain from the property sale and then the push out of service revenues. As Klaus said, the drop through seems to be very high. So the question really is how many of these service revenues have been pushed out. If you lose €10 million EBITDA, does that mean €30 million, €40 million of service revenue being pushed into Q2? And if it's such a large number, what happened there with this logistics partner? I think it's a substantial number and maybe you can shed a little bit more light on that situation and whether it could be recurring or whether this is a one-off.
Bernd Brinker: What we have done is we have built a new logistics center in Germany. We have transferred during Q1, at the beginning of Q1, the entire business into this new logistics center. And when we started this new logistics center, we also changed the collaboration with the service provider. Now we have also a new service provider on board. So we started with the new factory, so with the new logistics center and the new service provider at the same time. And we've seen – we were faced with significant IT issues on the service provider side, so they were not able to do the picks for this business as required. So there was a significant underperformance compared to demand. So, therefore, we couldn't fulfill all the orders on time. And this led to a postponement of execution of orders from the first quarter, as I said earlier, predominantly into the second quarter. So we basically expect to entirely catch up in the second quarter. And what I also said, we have even seen, in the meantime, a pick up in the order intake on the service side. So if we want to understand whether there is a negative impact on the business itself, we can say that we did not experience that. So, therefore, we only see a move of revenue as well as profitability from this business into the second quarter.
Sebastian Künne: But could it not be that customers are now seeing that there are delays and therefore they bring service orders forward just in case? [Multiple Speakers] were the genuine service orders that you see.
Bernd Brinker: So we experienced that quite – or we identified the issue quite early in the quarter and we were able to prioritize the execution of the orders in line with expectations of customers. And we manage closely the customer relationships, so we even don't expect any negative impact on the customer side.
Sebastian Künne: And finally, again, so the impact was €10 million on EBITDA. What do you then say is the push out in terms of Q1, Q2? It must be a large number, right? Otherwise, the math simply don't work.
Bernd Brinker: As I said earlier, we will not comment further on this.
Operator: We will now take our next question. The next question is from Christoph Dolleschal from HSBC.
Christoph Dolleschal: First of all, a question on the very strong currency effect seen in SFT and Farm Technologies. It was at least higher than I expected. Could you explain which countries this primarily came from and what their revenue share was? Supposedly high inflation countries or high…?
Stefan Klebert: You're absolutely right. So major currencies where we see this impact are hyperinflation countries, Argentina as well as Turkey. Those were the biggest contributors. But we also see an impact from the Chinese renminbi and also – let's say that those are the most important currencies. So those three, would like to mention.
Christoph Dolleschal: Because, obviously, the shares then of those countries must be higher than average for the group. Can you give us a bit more detail on what the revenue shares of Argentina and Turkey are for SFT and FT? Because it has been a problem for a few quarters now, right?
Stefan Klebert: That's true. Just bear in mind that, in Argentina, we've seen basically an inflation in the months of December, as an example, by 100%. This has continued since then. So the impact is surprisingly high.
Christoph Dolleschal: Can you give us an idea how much roughly of revenue is coming from Argentina and Turkey? Or you don't disclose it on a second level?
Stefan Klebert: Let me just check whether we can provide those. We will check and we will provide that number maybe later in the call. So maybe we can continue [Multiple Speakers].
Christoph Dolleschal: I have a follow-up on LPT. As you already indicated in Q4 and also to – yeah, at the results, you said you were starting to adjust capacities because the order intake situation is not as it was expected. I was just wondering whether you can give us an update there and what kind of a capacity adjustment should we think about? We were at, let's say, €450 million to €500 million a quarter. And now, we are rather at levels of about €400 million, is that a fair assumption? Basically, let's say from 1.8 to 1.6 in order intake, is that a fair judgment?
Stefan Klebert: Yeah. You have to have in mind, when we talk about the LPT business, this is a business where we have a very high proportion of material and equipment higher than in other divisions because the large projects has a higher spend here. And then, it depends very much what do we do in LPT. Though it's difficult to give you here numbers. But I can tell you that you don't have any fear that any restructuring costs are coming here up. That's not foreseeable, first of all, because we have a very interesting pipeline and feel that we will get interesting orders in the course of the year. And secondly, it is nothing which we just start. We already started at the end of last year and beginning of this – in the first quarter to take out people where they are not needed and adapt the organization whenever necessary. So there is nothing which should worry you here.
Christoph Dolleschal: I recall that. I was just wondering when we see the margin moving up again because you've already started taking those measures. So as of Q2, we expect the margin to improve again?
Stefan Klebert: The margin will come back when sales is picking up. That's very clear because we need additional sales to really bring up the margin.
Christoph Dolleschal: Then also on LPT, one more, you said you saw postponements, but you didn't see cancellations, right?
Stefan Klebert: No.
Christoph Dolleschal: And then last, but not least, on prices, at the Q4 call, you indicated that you see wage growth in the region of 3% and said, okay, that is most likely to be compensated with price increases. Were they already executed or are price increases just going to come during the year?
Stefan Klebert: Yeah. It's not that we have one single day where the whole GEA Group worldwide is increasing prices. So it depends on countries, it depends on divisions or even business units. In some of our businesses, we have price lists and others we do project calculations. So it's not that we can say has it been executed, yes or not. It's more a continuous process in which we are in, where we are talking and challenging our businesses frequently and regularly. And also, this year, we had already meaningful price increases in different areas. I would like to come back to your earlier question on the currencies. I would like to refer to our presentation and in the backup on slide 34. You can find all the information on our currency exposure there. So there you see based on order intake, the split for the Q1 2024. And just to name the countries and currencies which I've just named here, is China, we have an 8% share of our entire orders on group level. For Turkey, we have 2% of total order intake. And for Argentina, 1%. So we share that only on group level and not on divisional level.
Christoph Dolleschal: I've seen that. And from these numbers, I wasn't able to really conclude why the other numbers were down so much, but I'll try to do the math on the back of that.
Operator: We will now take our final question. The last question is from the line of Sebastian Growe from BNP Paribas (OTC:BNPQY) Exane.
Sebastian Growe: First one would be around the FHT segment. You had more than 200 base points margin recovery and now hitting the lower bound of the 2024 target range, so 9.5% to 11.5%. And that is despite, let's say, dropping 20% roughly, sequentially that is. So I guess, my question against that backdrop is how should we think about the trajectory from here, both from a mix perspective as per what's in your order backlog. And as you also gave a bit of color around the LPT segment and the order pipeline, how should we think about the outlook in terms of demand going forward for the segment? And then, I would have one more, but maybe we can start here first.
Stefan Klebert: I think what you can see is that we – and that is also what we guided and told in the last call that we can get rid of the issues in FHT. We will get rid of the issues in FHT. That is also what you can see here, which is that we are now in Q1 already at the margin, which is already at the lower end of the guidance range we have for this year for FHT. So we are here quite good underway and a lot of measures are in place, so that I can confirm, like I promised you, that we have identified the issues, we have addressed the issues and we are managing the issues.
Sebastian Growe: But would it be fair to assume that with the sort of better mix in the backlog that there's a lot of self-help just from executing more of the newer projects with the new structures, and then if volumes were to come on top and maybe you can comment on the pipeline, then there would be additional leeway. Is that the right sort of framework?
Stefan Klebert: Yeah, sounds good. Yeah, I think so. Yeah.
Sebastian Growe: Then now to the pipeline.
Operator: Thank you. And there are no further questions, so I will now hand the conference back to Mr. Klebert for final remarks.
Stefan Klebert: Yes, thank you very much. Thank you all for your good questions and for your interest. I hope that we could show you that GEA is delivering again and again and again. We are delivering what we promised. We are again a bit better in terms of profitability, like you might have expected. And we are in line with our growth rate of sales. We are also optimistic that the order intake will pick up during the course of the year. And that is my summary from today. So stay tuned and thanks for your continuing interest. And then we will talk to each other again when we release our half year numbers. Thank you very much, and have a good day.
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