Krones warns Le-Nature fraud case settlement could still strike profits

By Ben Bouckley

- Last updated on GMT

Related tags Finance

Krones has warned that settlement payouts regarding its alleged participation in a massive US fraud case could still hit its 2011 bottom line, while the company reports that yearly post-tax profits slumped despite top-line growth.

The German beverage filling and packaging giant posted a turnover of €2.48bn (€1.87bn) in 2010 (+14.1%, 2010), and said it had “overachieved”​ its growth target; pre-tax earnings rose from €70.8m (2010) to €74.6m.

However, earnings after tax fell from €50.9m to €43.7m.“Due to the above mentioned one-off effect [relating to the prospective Le-Nature settlement] and the expenses entailed by a tax audit, the company’s tax rate rose significantly in comparison to the preceding year.”

And Krones warned that results could still be weakened by a provision in its 2011 financial statements “relating to potential settlement arising from the Le-Nature litigation”.

Krones is currently mediating with US-plaintiffs with respect to a settlement regarding its alleged involvement in the large-scale Le-Nature fraud, and a spokeswoman told this morning that the company could not yet confirm a precise figure for the payout.

Le-Nature’s Ponzi-style scheme 

However, the company told our sister site in early February that payouts could run into tens of millions of dollars.

Asked whether, if Krones had to pay out such damages, 2011 would be considered as a disappointing year, the spokeswoman said:"The disappointment was that we were sued in various law suits. We continue to regard the allegations as unfounded."

She added that, under US law, there was no statutory period within which the settlement had to be completed, and could not, consequently, provide a date.

A slew of US legal claims allege fraud by the management of US beverage producer, bottler and distributor Le-Nature to the tune of $850m; former CEO Gregory Podlucky was sentenced to 20 years in jail last autumn for extensive fraudulent activity.

He aimed to encourage Le-Nature’s investors to inject new finances into the firm to fund new plants, and fraudulent practices include forging vendor documents and submitting balance sheets falsely claiming huge growth between 1999 and 2004.

Krones is named in lawsuits in connection with allegedly colluding with Le-Nature to inflate the stated costs of filling lines it delivered to the company.

Alleged lies to investors

One suit filed in Pennsylvania names current Krones chairman Volker Kronseder in the action, and alleges that Krones helped Podlucky tap $118m in financing by supposedly refunding Le-Nature for deposits it falsely told investors it had made on equipment.

The German firm accused of submitting inflated bills for equipment earmarked for a Phoenix plant to the US company’s financiers, then returning "excess payments"​ to Le-Nature.

Krones said it expected to significantly strengthen profitability in 2012, and would publish more perspective details on its outlook for this business year (plus complete 2011 financial statements) on April 25.

Accordingly, all the figures outlined above were provisional, the firm said, and may change during the course of an audit.

As of December 31 2011, Krones had no bank debt and net cash reserves totaled more than 125m, with an equity ratio (which measures the proportion of total assets financed by stockholders and not creditors, and is used to measure the relative proportion of equity used to finance a company’s assets) of 38.5%. 

“This sustainably sound financial and capital structure constitutes a solid foundation for ensuring that the company will achieve its future targets,”​ the company said.

Asked why the firm had upped its 2011 shareholder dividend so significantly (from 40 euro cents in 2010 to 60), given continued uncertainty over the payout and lower year-on-year net profits, the spokeswoman said it was based on Krones "positive operative development in the 2011 year".

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