Interim Report 1.1.-30.9.2007: During the third quarter, operational result dampened while net sales increased from the previous year

 | Source: Huhtamäki Oyj Huhtamäki Oyj

STOCK EXCHANGE RELEASE HUHTAMÄKI OYJ 25.10.2007 AT 8:00
 
Interim Report 1.1.-30.9.2007: During the third quarter, operational result dampened while net sales increased from the previous year
 
* Net sales growth of 4%
* Group EBIT reflects raw material price increases, negative currency impact and weak operational result in Asia-Oceania-Africa
* Full-year operational result expected to be around the level of 2006
* Strong measures being taken to decrease working capital and improve margins
* Strategic measures to accelerate earnings growth
 



* The underlying EBIT excludes restructuring charges
 
Business review
 
In the third quarter, market demand for consumer packaging in the majority of the mature markets was stable. However, in North America a slowdown in demand was experienced, especially in September. Demand continued healthy in the emerging markets. While the prices for the main raw materials remained on a high level during the quarter, they showed a clear increase compared to the average level of the previous year.
 
Volume growth (+3%), although slower than expected, and price/mix changes (+2%) had a positive impact on reported net sales of EUR 582.4 million (+4%). The impact from currency translations on net sales was negative (-1%).
 
In January-September, net sales was EUR 1,753.2 million (+2%). The geographical distribution of sales was the following: Europe 53% (53%), Americas 30% (31%) and Asia-Oceania-Africa 17% (16%).
 
 
Europe



(12m roll.)
 
In Europe, sales growth within Consumer Goods segment in the third quarter was solid in the Flexibles business and improving in the Films business after temporary issues following the implementation of the new enterprise resource planning (ERP) platform. While sales performance in the Rigid Consumer Goods business was overall stable, weakness in sales continued in the UK and was also experienced in Southern Europe. Within Foodservice segment, sales growth remained healthy driven by Eastern and Southern Europe. For the quarter, the reported net sales was EUR 310.2 million (+5%) with a positive impact from volume (+5%).
 
The region's underlying EBIT was EUR 14.7 million (-1%), corresponding to an EBIT margin of 4.7% (5.0%). This reflects favorable volume development and recovering profitability of the Films business, offset by weaker than expected price/mix development. The reported EBIT was EUR 14.7 million. In the previous year the reported EBIT of EUR 13.2 million included restructuring charges of EUR 1.7 million.
 
With reference to the earlier announced programs, the capacity expansion in Foodservice beverage cups in several European units was completed during the quarter.
 
In January-September, net sales was EUR 935.4 million (+4%). The underlying EBIT of EUR 43.0 million (-12%) corresponded to an EBIT margin of 4.6% (5.4%). The reported EBIT was 43.0 million (EUR 39.9 million).
 
 
Americas



(12m roll.)
 
In the Americas, sales declined within Consumer Goods segment especially in the Frozen desserts and the Pet food categories during the quarter. The shortfall was partially mitigated by sales growth in Retail within Foodservice segment. Growth in the South American Rigid businesses continued on a good level. For the quarter, the positive impact from price/mix changes (+6%) compensated for the decline in volume (-2%). The reported net sales of EUR 170.0 million (-2%) was depressed by currency translations (-6%).
 
The region's underlying EBIT was EUR 13.5 million (-3%), corresponding to an EBIT margin of 7.9% (8.1%). This reflects volume shortfall and negative currency impact offset by favorable mix development, diligent price management and continued improvement in operational efficiency.
 
The new capacity added to the existing flexibles packaging facility in Malvern, USA, is on track and scheduled to be operational by year-end 2007.
 
In January-September, net sales was EUR 518.9 million (-4%). The underlying EBIT of EUR 52.2 million (+10%) corresponded to an EBIT margin of 10.1% (8.8%).
 
 
Asia-Oceania-Africa



(12m roll.)
 
In Asia-Oceania-Africa, sales performance within Consumer Goods and Foodservice segments was solid during the third quarter. In Asia, volume growth remained favorable driven by the Flexibles business, especially with the introduction of new capacity in Rudrapur, India. In Oceania, sales growth in the Rigid businesses was overall steady. For the quarter, there was continued volume growth (+5%) and a positive impact from price/mix changes (+3%). The reported net sales of EUR 102.2 million (+11%) was boosted further by currency translations (+3%).
 
The region's underlying EBIT was EUR 4.5 million (-40%), corresponding to an EBIT margin of 4.4% (8.2%). This reflects start-up costs associated with investments in new capacity, especially in Guangzhou, China, as well as unfavorable margin development in India. In Oceania Foodservice, weakness in operational result was due to one-off items and operational inefficiency.
 
The relocation from Hong Kong, China, to the new rigid packaging facility in Guangzhou, China, progressed and is expected to be completed during the first quarter of 2008. Construction work at the new flexibles packaging facility in Bangkok, Thailand, started during the quarter with production expected to commence around mid 2008.
 
In January-September, net sales was EUR 298.9 million (+8%). The underlying EBIT of EUR 15.5 million (-13%) corresponded to an EBIT margin of 5.2% (6.4%).
 
 
Financial review
 
In the third quarter, the underlying EBIT before corporate items was EUR 32.7 million (-10%), corresponding to an EBIT margin of 5.6% (6.5%). Corporate net was EUR 0.5 million (EUR 3.4 million) reflecting the expected reduction in royalty income.
 
The underlying Group EBIT was EUR 33.2 million (EUR 39.8 million), corresponding to an EBIT margin of 5.7% (7.1%). The reported EBIT was EUR 33.2 million. In the previous year the reported EBIT of EUR 38.1 million included restructuring charges of EUR 1.7 million.
 
At EUR -10.7 million (EUR -9.0 million), the increase in net financial items was mainly due to higher interest rates and debt level. The reported profit for the period was EUR 18.7 million (EUR 26.6 million), and EPS was EUR 0.18 (EUR 0.25).
 
In January-September, the Group's underlying EBIT was EUR 106.6 million (-20%), corresponding to an EBIT margin of 6.1% (7.8%). This reflects mainly a EUR 24.1 million reduction in corporate net as well as a weaker operational result. The reported EBIT was 106.6 million. In the previous year the reported EBIT of EUR 125.1 million included restructuring charges of EUR 8.8 million. Net financial items were EUR 30.9 million (EUR 27.4 million). The income tax expense was EUR 13.5 million (EUR 13.9 million), corresponding to a tax rate of 17.8% (14.2%). The reported profit for the period was EUR 62.5 million (EUR 84.1 million), and EPS was EUR 0.61 (EUR 0.82).
 
The average number of outstanding shares used in the EPS calculation was 100,426,461 (98,935,107) excluding 5,061,089 (unchanged) company's own shares.
 
On a rolling 12-month basis, the return on investment (ROI) was 7.8% (9.8%) and return on equity (ROE) was 8.7% (11.8%).
 
Balance sheet and cash flow
 
In the end of the third quarter, free cash flow of EUR -2.0 million (EUR 9.6 million) was impacted by an increase in capital expenditure to EUR 35.4 million (EUR 27.3 million) as well as elevated level of working capital. In January-September, free cash flow was EUR -44.7 million (27.3 million) with capital expenditure of EUR 92.5 million (EUR 73.3 million).
 
Net debt at the end of the third quarter was EUR 783.4 million (EUR 687.1 million), corresponding to a gearing ratio of 0.90 (0.81).
 
 
Personnel
 
The Group had 14,963 (14,521) employees on September 30, 2007.
 
 
Strategic measures to accelerate earnings growth
 
All businesses will focus on improving profitability and the earlier confirmed financial targets for the Group remain unchanged. Enhanced shareholder value will be created through focused growth, capitalizing on Huhtamaki's positions of strength.
 
The Flexibles and Films businesses will expand globally and be recognized as an innovative leader and a best-in-class performer in chosen product and market segments. Investments will be targeted on strengthening the position especially in North America and Asia.
 
Rigid Food and Beverage Packaging will grow selectively with particular focus on Foodservice in Europe and Asia and on Retail in North America. Huhtamaki's leading paper and fiber capabilities strengthen its position also as a supplier of sustainable packaging alternatives.
 
Huhtamaki will decrease its presence in such business areas that do not meet the profitability requirements or do not create value in the execution of the Group strategy. As a consequence, Huhtamaki is considering different strategic options for its Consumer Goods business unit in the UK and all of its operations in South Africa.
 
 
Events after the reporting period
 
Huhtamaki revised the 2007 full-year outlook downwards on October 10, 2007. The revision was due to weakened volumes and operational results in September as well as softer volume outlook in the remainder of the year.
 
In the short-term, measures are being taken to adjust costs to meet the current volume levels. These include adaption of manning and overall cost containment.
 
 
Short-term risks and uncertainties
 
Volatile raw material and energy prices as well as movements in currency translations are considered to be significant short-term business risks and uncertainties in the Group's operations.
 
 
Outlook for 2007
 
The operational result is expected to be around the level of 2006 (EUR 138.1 million). There will be a significant reduction in corporate net mainly due to lower royalty income. Consequently, the underlying EBIT for the full-year is estimated to remain clearly below the level of 2006 (EUR 157.6 million). Increase in net financial items and higher tax rate will have an impact on earnings.
 
This interim report is unaudited.
 
Espoo, October 24, 2007
Huhtamäki Oyj
Board of Directors
 
The 2007 Results will be published on February 14, 2008.
 
 
For further information, please contact:
Mr. Heikki Takanen, CEO, tel. +358-10-686 7801
Mr. Timo Salonen, CFO, tel. +358-10-686 7880
Ms. Kia Aejmelaeus, Head of Investor Relations, tel. +358-10-686 7819 or mobile +358-40-765 4616
Ms. Taina Erkkilä, Group Vice President Communications, tel. +358-10-686 7876 or mobile +358-50-577 4059
 
At 11:00 Finnish time a conference for investors, analysts and media will be held at the head office, address Länsituulentie 7, Espoo. CEO Heikki Takanen and CFO Timo Salonen will present the results.
At 15:00 Finnish / 13:00 London / 08:00 New York time a conference call for investors and analysts will start with a management presentation, followed by a question and answer session. Should you wish to participate, please dial one of the following numbers:
* Number for participants from Finland: 0923 193 019
* Number for participants outside of Finland: +44 (0) 1452 542 300
* Conference ID: 20386469
All materials will be available on our website at www.huhtamaki.com. The results presentation slides will  be online approximately at 11:00 Finnish time. A replay of the conference call in the form of an audio webcast will be available during the same evening.
 



 
 
 




 
 
 




 
 
 




 
 
 
NOTES FOR THE INTERIM REPORT
 
This interim report has been prepared in accordance with IAS 34 Interim
Financial Reporting. Except for accounting policy changes listed below,
the same accounting policies have been applied in the interim financial
statements as in annual financial statements for 2006.
Interim report is unaudited.
 
Changes in accounting principles
The Group has adopted the following IFRS standards and interpretations
considered applicable to Huhtamaki, with effect from January 1, 2007:
 
"IAS 1 Presentation of Financial statements: Capital disclosures:
The Amendment to IAS 1 requires information about capital and capital
management during the accounting period.
 
IFRIC 8 Scope of IFRS 2 Share-Based Payments: The interpretation applies
to share-based payments, where the received compensation is below
the fair value of granted equity instrument.
 
IFRIC 9 Reassessment of Embedded Derivatives: The interpretation requires
the determination of whether the arrangement contains embedded derivatives,
which have to be reported separately as derivative instruments.
 
IFRIC 10 Interim Financial reporting and Impairment: IFRIC 10 denies to
reverse the impairment charge reported in interim report at later closing dates."
 
The effect of these newly adopted standards has not had a material impact
on the reported results or disclosures.
 
In 2006 in the Americas segment the price reduction type item has been
transferred from sales and marketing costs to amend net sales.
In the business segment the whole item fell on the Foodservice segment.
The effect of this restatement on net sales was EUR -3.9 million in Q1,
EUR -6.7 million in Q2 and EUR -3.2 million in Q3 of 2006.
The restatement did not have material impact on net sales based key ratios.
 
 
 




 
 
 




 
 
 




 
 
 




 
 
 
Share capital and shareholders
At the end of the review period, the company's registered share capital was
EUR 358,657,670.00 (354,700,872.40) corresponding to a total number of
outstanding shares of 105,487,550 (104,323,786) including 5,061,089
(unchanged) company's own shares. The company's own shares represent
4.8% of the total number of shares. The net figure of outstanding shares
was 100,426,461 (99,262,697).
 
At the end of September there were 21,273 (21,157) registered shareholders.
Nominee registered shares including foreign ownership accounted for 26.9% (22.5%).
 
Share developments
Huhtamaki's share is quoted on the Helsinki Stock Exchange on the Nordic Large Cap
list under the Materials sector. At the end of September, the company's market
capitalization was EUR 1,125.6 million (EUR 1,424.0 million) and EUR 1,071.5 million
(EUR 1,354.9 million) excluding company's own shares.
 
With a closing price of EUR 10.67 (EUR 13.65) the share price decreased by 28.3%
(-1.9%) from the beginning of the year, while the OMX Helsinki CAP PI Index increased
by 14.5% (+11.4%). In January-September, the volume weighted average price for
the Huhtamaki share was EUR 12.40 (EUR 14.42). The highest price paid was
EUR 15.89 on January 15, 2007 and the lowest price paid was EUR 10.37
on July 27, 2007.
 
During the first nine months, the cumulative value of the Huhtamaki share turnover
was EUR 1,083.2 million (EUR 789.0 million). The trading volume of 87.7 million
(54.7 million) shares equaled an average daily turnover of EUR 5.7 million
(EUR 4.2 million) or, correspondingly 464,239 (289,285) shares. In total, turnover of
the company's 2003 A, B and C option rights was EUR 3.1 million, corresponding to
a trading volume of 732,138.
 
 
 




 
 
 
The following EUR rates have been applied to GBP, INR, AUD and USD
 




 
 
 
Definitions for key indicators
 
Earnings per share = Profit before taxes - minority interest - taxes / Average number of shares outstanding
 
Earnings per share (diluted)  = Diluted profit before taxes - minority interest - taxes / Average fully  diluted number of shares outstanding
 
Net debt to equity (gearing) = Interest bearing net debt / Equity + minority interest (average)
 
RONA-% = 100 x Earnings before interest and taxes (12 m roll.) / Net assets (12 m roll.)
Shareholders' equity per share = Equity / Issue-adjusted number of shares at period end
 
Return on equity (ROE) = 100 x (Profit for the period) / Equity + minority interest (average)
 
Return on investment (ROI) = 100 x (Profit before taxes + interest expenses + net other financial expenses) / Balance sheet total - Interest-free liabilities (average)
 
 

Attachments

Interim Report Jan 1 - Sept 30, 2007 pdf
GlobeNewswire

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