Huhtamaki: first quarter on track

Huhtamaki: first quarter on track Huhtamaki, the worldwide leader in speciality consumer packaging, reports solid sales progress and improving profitability in the first quarter of 2001 against the corresponding pro forma1) figures in 2000. The Van Leer industrial packaging division divested at the beginning of March 2001 has been eliminated from the reported figures. Key figures Change % Change % EUR million pro forma actual Net Sales 570.8 6 - 27 EBIT 34.9 28 - 13 Profit before minority interest and 20.7 10 - 11 taxes EPS (EUR) 0.41 17 - 7 EPS before amortisation (EUR) 0.75 14 - 4 The year has started largely according to plans. The Group EBIT margin improved by a full percentage point, mainly driven by strong progress in Europe. The divestment of the industrial packaging division resulted in a sharp reduction of net debt. Market developments and commercial success during the seasonally strong second and third quarters are decisive for the full-year results. While the European beef crisis has disturbed the food service and fresh foods markets in many countries, Huhtamaki's sales have been affected only marginally. The slowdown in the United States has so far had no visible influence. Synergy and restructuring benefits will accelerate profit generation towards year-end. Overall, Huhtamaki remains comfortable about its prospects in 2001 and expects an improvement in the full-year earnings per share. Espoo, Finland, May 11, 2001 Huhtamäki Oyj Board of Directors 1)The pro forma figures for 2000 include divested consumer packaging operations until the time of divestment. The sales, EBIT, depreciation, goodwill amortisation and financial expenses related to Van Leer Industrial have been eliminated in 2000 and 2001. Positive business developments After years of strategic reorientation, Huhtamaki is now fully focused on developing its consumer packaging operations. This is beginning to pay off commercially and financially. Against the background of the European beef crisis, a slowdown in the U.S. economy and a poor summer in Australia, the overall sales performance was satisfactory in the first quarter, and many problem units showed improving results. The margin recovery was particularly strong in Europe. Key customer relationships advanced well, and important sales agreements were concluded or extended during the quarter. Net sales amounted to EUR 570.8 million in January-March, 6% above the corresponding pro forma figure for 2000. Volume growth amounted to 2% and prices were up by 4%, while net effect of acquisitions and divestments was close to zero, and that of foreign exchange conversions also minimal. Sales were 27% below the actual net sales in the first quarter in 2000, including industrial packaging division. FMCG (fast moving consumer goods packaging) sales amounted to EUR 305.2 million, almost unchanged from 2000 pro forma, which includes the subsequently divested technical films and coatings units. Food Service (including fresh foods packaging) sales advanced by 16% to EUR 265.6 million. In Europe, sales for the quarter increased by 5% to EUR 296.1 million pro forma. Healthy growth was evident across North Europe. In Central Europe, flexible packaging continued to grow, and the German rigid packaging operations improved their performance remarkably. The films business enjoyed another strong quarter. Moulded fibre operations benefited from declining raw materials prices. Firmer sales and earnings were evident in the U.K., whereas sales in Southern Europe reflected the beef crisis, voluntary retreat from certain unprofitable segments in France, and soft demand in Italy and Spain. With all regions nevertheless showing firmer earnings compared to the first quarter of 2000, the EBIT contribution from Europe improved by 48% to EUR 21.4 million or 7.2% of sales. Boosted by acquisitions in late 2000, American sales increased by 46% to EUR 190.9 million. Steady growth continued in the North American food packaging business, with new contracts more than offsetting any declines in traditional business. The food service segment reflected cautious ordering by major distributors, while retail sales were quite strong, and the new plastic packaging and flexibles operations met expectations. Strong business performance continued In South America. Major new accounts were secured, and leading food companies adopted Sealright® system packaging for new, innovative product applications. The EBIT from Americas increased by 34% to EUR 11.7 million, 6.1% of sales. Sales in Asia, Oceania and Africa amounted to EUR 83.8 million. The 31% decline from the previous year's figure was due to divestments. Australia and New Zealand account for over 40% of the region's sales. These countries again displayed steady progress despite some weakness in food service and consumer flexibles. The Chinese and Southeast Asian rigid packaging operations advanced well, and the Thai flexibles business was on track. PPL, the major Indian flexibles operation, began to recover from a slowdown caused by both economic factors and a devastating earthquake towards the end of 2000. The economic situation in Turkey hampered results, and the South African operations also had an unsatisfactory quarter. The aggregate EBIT contribution from Asia, Oceania and Africa declined to EUR 4.4 million or 5.3% of net sales. Profit improvement on track In 2000, profitability suffered from the continuing increases in key raw materials prices. The pressure continued through the third quarter, after which a slow recovery became evident in consumer packaging margins. This year, movements in raw materials prices have been less pronounced. Polystyrene, the most important polymer for Huhtamaki, has declined from its peak price in 2000, while polypropylene and polyethylene prices have remained stable. The prices for recycled paper have declined significantly. For the remainder of the year, steady prices for virgin paperboard (cupstock) have been secured. At the same time, further price increases for finished products have been implemented. Synergies and restructuring benefits were on track, with positive developments evident in both sourcing and manufacturing. The savings from manufacturing operations will nevertheless become more pronounced during the second half of the year. The EBIT from business operations (excluding corporate items) amounted to EUR 37.5 million, 6.6% of net sales and 12% above the corresponding pro forma figure in 2000. FMCG contributed EUR 18.1 million, 5.9% of sales and down by 19% due to effect of divested operations. Food Service accounted for EUR 19.4 million, 7.3% of sales and 73% ahead of last year's figure. Depreciation of tangible assets amounted to EUR 28 million (- 23% against actual 2000). The corporate EBIT contribution, a net cost of EUR 2.6 million, represents a significant improvement from the first quarter of 2000. Corporate income increased markedly and unallocated costs declined, while goodwill amortisation remained almost unchanged at EUR 10.7 million. At EUR 14.4 million, the net financial expenses were 16% below the actual 2000 figure. Interest related to the divested Van Leer Industrial assets has been eliminated from this figure. Taxes for the quarter amounted to EUR 6.6 million, 14% less than actual 2000 and 6% above pro forma. After a minority interest of EUR 1.2 million, net income stood at EUR 12.9 million, 7% below actual 2000 but 16% ahead of pro forma. Earnings per share for the period amounted to EUR 0.41, 7% below actual 2000 but 17% better than pro forma. The figure is fully in line with internal projections. Capital expenditure Capital expenditure during the quarter amounted to EUR 20 million. Several capacity expansions were in progress for rigid and flexible packaging, as well as projects related to manufacturing streamlining. Plans for the reconstruction of the Siemianowice plant in Poland, which suffered from a fire in late 2000, were nearing completion. Industrial Packaging division divested The sale of the Van Leer Industrial Packaging division to the U.S. company Greif Bros. was finalised on March 2. Its sales and earnings have not been included in the Group income statement during 2001. The final sale price was USD 555 million (hedged to translate into EUR 610 million). The profit from the transaction, i.e. the difference between the sale price and the division's net equity value (book value) in the balance sheet, has been booked against goodwill emanating from the original Van Leer transaction. The gross capital gain from the transaction amounted to approx. EUR 115 million. Van Leer Industrial's operating loss and interest charges in January-February 2001 have been deducted from this figure. Further write-backs to goodwill were made to provision for the restructuring of certain smaller ex-Van Leer packaging operations, as well as for potential liabilities associated with the divestment of Van Leer Industrial. The net reduction in goodwill hence amounted to approx. EUR 75 million. As a broadly similar amount of new goodwill emanated from the acquisition of the PRI assets, goodwill amortisation will remain on its present level, i.e. at approx. EUR 10 million per quarter for the rest of 2001. Depreciation of physical assets will decline to approx. EUR 27 million per quarter. Net financial expenses will decline to approx. EUR 13 million per quarter, assuming stable interest rates. Financial position The Group's balance sheet strengthened significantly in early March, when the divestment of Van Leer Industrial was completed. Through transfer and immediate repayment of debt, net debt declined from year- end by 40%, to EUR 824 million at the end of March. The corresponding net debt to equity ratio (gearing) declined from 1.22 to 0.73. Annual General Shareholders' Meeting The Annual General Shareholders' Meeting was held in Helsinki on April 3. The AGM approved the Board's dividend proposal of EUR 1.10 per share, changed the parent company's name back into Huhtamäki Oyj, authorised the Board of Directors to launch a share repurchase programme covering up to 5% of the company's outstanding shares within a year, and amended the pricing mechanism in the company's Option Rights 2000 programme. All Board members were re-elected for a new one-year term, except for Mr. Heikki Marttinen, who no longer was available and was replaced by CEO Timo Peltola as a nominee of the Finnish Cultural Foundation. Share developments During the first quarter, the Huhtamaki share fluctuated within a range of EUR 25-29, strengthening towards the end of the period. The share outperformed the HEX index but momentarily lost valuation relative to its international peer companies. Turnover was low early in the year but picked up during March. There were no major changes in the company's shareholder structure. The share repurchase programme commenced on April 11. By May 7, a total of 187,550 shares had been repurchased at an average price of EUR 28.80 per share. Corporate structure Apart from the divestment of Van Leer Industrial, the corporate structure saw no significant changes. The restructuring of European rigid packaging operations advanced in line with plans, and a small French plant was shut down during the period. Negotiations stipulated in Dutch law continued for the transfer of paper cup production from Groenlo, The Netherlands, mainly to Göttingen, Germany. After hearing advice from the Works Council, the company has formally decided to carry out the plan, and machine transfers are expected to start during May. The streamlining of flexible packaging operations continued in New Zealand. Management There were no changes in senior management during the quarter. Personnel At the end of March, the company had 17,700 employees on its payroll in 36 countries. The figure was 5,398 less than at year-end, reflecting the divestment of Van Leer Industrial. By the number of employees, the largest operating country was the United States with 3,440 persons, followed by Germany (2,609), the U.K. (1,463), India (1,352) and Australia (835). The company's European Works Council (EWC) held its first official meeting in Espoo, Finland, on March 28-29. Outlook The outlook for the remainder of 2001 justifies careful optimism. The company has kept its market shares, has won new business and is on track with its internal synergy and rationalisation programmes. Market developments and commercial success during the seasonally strong second and third quarters are decisive for the full-year results. While the European beef crisis has disturbed the food service and fresh foods markets in many countries, Huhtamaki's sales have been affected only marginally. The slowdown in the United States has so far had no visible influence. Synergy and restructuring benefits will accelerate profit generation towards year-end. Overall, Huhtamaki remains comfortable about its prospects in 2001 and expects an improvement in the full-year earnings per share. ------------------------------------------------------------ This information was brought to you by BIT http://www.bit.se The following files are available for download: http://www.bit.se/bitonline/2001/05/11/20010511BIT00010/bit0001.doc The full report http://www.bit.se/bitonline/2001/05/11/20010511BIT00010/bit0001.pdf The full report