Interim Report  January – March 2011

The merger with Hamelin is progressing as planned and a new, stronger Bong is taking shape. The work to realise synergies is ongoing,” says Bong President and CEO Anders Davidsson. “Although first quarter earnings were pressured by continued price increases on uncoated fine paper and other raw materials, ProPac delivered healthy growth and cash flow was good.

January – March 2011

• Net sales of SEK 854m (501)

• ProPac sales of SEK 153m (76)

• Operating profit of SEK 26m (13)

• Profit after tax of SEK 9m (5)

• Cash flow after investments of SEK 30m (13)

• Earnings per share of SEK 0.46 (0.32)

Operating profit by quarter, MSEK

* Including the transaction costs of 15 MSEK
** Including expenses related to the merge with Hamelin envelope division, and other nonrecurring items totaled –136 MSEK

Cash flow by quarter, MSEK

*
Before the cash consideration and transaction costs associated with the Hamelin merger

Bong is the leading provider of specialised packaging and envelope products in Europe, offering solutions for distribution and packaging of information, advertising materials and lightweight goods. Important growth areas in the Group are the ProPac packaging concept and the Russian market. After the merger with Hamelin’s envelope division the Group has annual sales of approximately SEK 3.5 billion and about 2,500 employees in 15 countries. Bong enjoys strong market positions in Europe and the Group sees attractive opportunities for further expansion and development. Bong is a public limited company whose stock is quoted on the NASDAQ OMX Nordic Stock Exchange Stockholm (Small Cap).

Market and industry  

Demand in the European envelope market remained relatively weak in the first quarter. In the company’s assessment, the West European market has declined by a few percent compared to the same period in 2010. Vigorous development continued in the Russian and East European markets, which grew by an estimated 10 percent compared to 2010.

The packaging market, in which Bong sells its ProPac range, is significantly larger and more multifaceted than the envelope market. Market statistics for the niches in which Bong is active are unavailable or difficult to obtain. In Bong’s assessment, the recent economic upturn has improved demand for packages used in the e-commerce, mail order and retail sectors, where the company expects strong growth potential over time.

Sales and profit January – March 2011

Consolidated sales for the first quarter were SEK 854 million (501). The comparison figure represents sales as reported for the first quarter of 2010 and thus does not include Hamelin. The depreciation of the euro had negative impact on consolidated sales. Restated at last year´s exchange rates consolidated sales would have amounted to approximately SEK 935m.

The volume trend for envelopes fell somewhat short of expectations during the quarter, which constrained earnings. ProPac delivered 100% growth, driven primarily by Hamelin and the acquisition of Bong CSK in Poland, which sells bubble bags. In constant currencies, ProPac grew by 125%. Order intake for gift bags was strong. The depreciation of the euro also had negative impact on earnings. Operating profit improved to SEK 26 million (13). Figured at last year’s exchange rate, operating profit would have amounted to SEK 31 million. The finance net was  SEK –14 million (–7). Profit before tax was SEK 12 million (6) and reported profit after tax was SEK 9 million (5).

Higher raw materials prices

prices for uncoated fine paper, Bong’s main production material, are still on an upward trajectory. All paper suppliers have provided advance notice of further price increases in the second quarter. Cost inflation is also continuing for several other production materials, especially petroleum-based products.

It is normally possible for Bong to pass on price increases on raw materials after a certain lag.

Cash flow and investments

cash flow after investing activities was SEK 30 million (13). Purchasing synergies in the form of improved payment terms began to manifest in lower working capital during the period. Cash used in investing activities during the interim reporting amounted to SEK 50 million. The figure includes payment of final purchase consideration of SEK 26 million to Holdham S.A. for the Hamelin acquisition, as well as the acquisition of Egå Offset in Denmark and normal capital expenditures of SEK 24 million in total. 

Financial position

cash and cash equivalents at 31 March 2011 totalled SEK 157 million (149m at 31 December 2010). The Group had unutilised credit facilities of SEK 200 million at 31 March 2011. Total available liquidity was SEK 357 million.

Consolidated equity at the end of March 2011 was SEK 533 million (531 million at 31 December 2010). Translation of net assets in foreign subsidiaries to Swedish kronor and changes in the fair value of derivative instruments reduced consolidated equity by SEK 9 million.

Interest-bearing net loan debt declined by SEK 36 million during the period to SEK 1,026 million (1,062 million at 31 December 2010). Translation of net loans in foreign currencies to Swedish kronor reduced the Group’s net loan debt by SEK 6 million.

Employees

the average number of employees during the period was 2,507 (1,220). The Group had 2,479 (1,236) employees at the end of March 2011. The large change is attributable to the 2010 merger with Hamelin’s envelope division.

Parent company

the parent company’s business extends to management of operating subsidiaries and Group management functions. Net sales were SEK 6 million (0) and the parent company is reporting a loss before tax of SEK 13 million (profit: 3).

Acquisitions

Acquisition of Egå Offset

As previously announced in a press release on 3 January 2011, Bong has acquired the Danish envelope and printing company Egå Offset’s operations in Århus. Through the acquisition, Bong gained an envelope printing plant and combined with the Danish subsidiary Bong Bjørnbak A/S became a major supplier of printed envelopes throughout Denmark. Egå Offset, a family business specialised in overprinting and envelope sales, is a significant regional player on Danish Jutland. The company has annual sales of approximately SEK 30 million and 17 employees. The acquisition made a positive contribution to Bong’s earnings as of the first quarter of 2011.

Opportunities and risks

business risks for the Bong Group are primarily related to market development and various types of financial risks. For further information, please refer to Bong’s annual report and the website, bong.com.

Accounting principles

this interim report was prepared in compliance with IAS 34 and the Swedish Annual Accounts Act. Application was consistent with the accounting principles outlined in the 2010 annual report and the interim report should be read along with those principles. Please refer to Bong’s 2010 annual report for a specification of the new amendments, interpretations and standards that took effect 1 January 2011. 

Kristianstad, 12 May 2011

BONG AB

Anders Davidsson

President and CEO

This report has not been audited by the company’s independent auditors.

Presentation of the report

The report will be presented in a teleconference on 13 May at 9:00 AM. The telephone number for the conference is +46 (0) 8 5052 0110. Pictures for the teleconference will be available on our website, bong.com, by 8:00 AM on the day of the conference.

For further information, please contact:

Anders Davidsson, President and CEO, Bong AB

+46 (0) 44 20 70 00 (main exchange),

+46 (0) 44 20 70 80 (direct line),

+46 (0) 70 545 70 80 (mobile).

Scheduled reports: 

• Interim Report January–June, 24 August 2011

• Interim Report January–September, 10 November 2011

• Year-end Report 2011, February 2012