Interim Report January 1 - March 31, 2008: Slow start to the year as expected

 

- Group net sales in slight decline due to adverse currency impact

- Lower earnings than in previous year due to weak performance in Films and in

Asia-Oceania-Africa

- Raw material costs on a record high level

- Improving trend in free cash flow

- New segment reporting to improve transparency

 

 

Overview

The decline in the Group net sales was due to adverse currency translation impact. In constant currencies the Group achieved modest growth. The first quarter 2008 earnings were below the same period in the previous year. The main reasons for the lower earnings were weak performance in the Films business and a significant one time gain of EUR 6 million received during the first quarter 2007. In addition, there was an adverse currency impact and the raw material costs remained on a record high level.

 

Business review by segment

Starting from 2008 Huhtamaki's segment reporting was revised to improve transparency. The five new segments, in line with the Group's internal management structure, are: Flexibles and Films Global, Rigid Europe, Molded Fiber Europe, Rigid and Molded Fiber Americas as well as Rigid and Molded Fiber Asia-Oceania-Africa. These will replace the former geographical segments (Europe, Americas, Asia-Oceania-Africa).

 

Flexibles and Films Global

Flexibles and Films are organized as a global segment. Flexibles are used for food and pet food packaging as well as non-food consumer packaging. Films are mainly used for technical applications in the label, adhesive tape, hygiene and health care industries as well as building and construction, automotive, packaging and graphic arts industries.

 

 

Sales decline within the segment was due to weakness in Films. Additionally, sales development in Flexibles North America and Europe was slow. This was partially offset by robust growth in Flexibles Asia.

 

Profitability reflects lower than expected volumes, operational inefficiency as well as margin pressure due to higher raw material costs. Films continued to suffer from operational issues following the earlier implementation of the enterprise resource planning (ERP) platform as well as the transfer of the release paper line from Göttingen to Forchheim, Germany. In Flexibles, the weak price/mix development continued in Europe and the ongoing ramp-up of new capacity added to the facility in Malvern, USA, had a negative impact on profitability. Sales growth in India and Thailand contributed positively to earnings.

 

Construction of the new flexible packaging facility in Bangkok, Thailand, proceeded according to schedule with production expected to commence around mid-year.

 

Rigid Europe

Rigid paper and plastic packaging serves foodservice and consumer goods markets in Europe with fresh food, dairy, ice cream, beverage and personal care packaging as well as disposable tableware. Rigid packaging is supplied to foodservice operators, fast food restaurants and food manufacturers.

 

 

Foodservice experienced a good, broad based growth within the segment, while sales in Consumer Goods were soft in Germany and in the UK.

 

Profitability reflects favorable mix development as well as an improving trend in operational efficiency.

 

Molded Fiber Europe

Molded fiber is used to make fresh product packaging, such as egg and fruit packaging.

 

 

Sales and earnings within the segment remained good due to favorable development in Eastern Europe and in the waste paper trading business. A tougher competitive environment had a negative impact on sales in the UK.

 

Rigid and Molded Fiber Americas

Rigid paper and plastic packaging, which serves ice-cream and other consumer goods as well as foodservice markets, is complemented with Molded Fiber Chinet® disposable tableware products. Similar market channels are a common denominator.

 

 

Sales growth in constant currencies was solid with good growth in Retail and in South America. Market softness persisted in Frozen desserts, spreading also into Foodservice during the quarter.

 

Profitability was stable on a comparable basis; excluding the EUR 6 million one time gain in 2007 as well as adverse currency translation impact.

 

Rigid and Molded Fiber Asia-Oceania-Africa

Rigid paper and plastic packaging serves foodservice and consumer goods markets. The segment also includes the Molded Fiber business which makes fresh product packaging.

 

 

Good growth in Asia did not compensate for the weak sales development in South Africa and in Consumer Goods Oceania.

 

Profitability reflects low sales as well as operational inefficiency in Oceania, the start-up costs in new capacity in Asia and market turmoil experienced in South Africa.

 

The relocation from the site in Hong Kong to the new facility in Guangzhou, China, is progressing with completion expected during the first half of this year.

 

 

Financial review

The Group EBIT was EUR 20 million (EUR 38 million in the first quarter 2007), corresponding to an EBIT margin of 3.6% (6.7%). At EUR 9 million, the net financial items were unchanged from the previous year. The income tax expense was EUR 2 million (EUR 4 million). The result for the period was EUR 9 million (EUR 24 million). The earnings per share (EPS) were EUR 0.09 (EUR 0.24). The average number of outstanding shares used in the EPS calculation was 100,426,461 (unchanged) excluding 5,061,089 (unchanged) Company's own shares.

 

Balance sheet and cash flow

Free cash flow for the quarter was EUR -12 million (EUR -37 million). The improving trend was due to more efficient working capital management as well as lower capital expenditure. Capital expenditure amounted to EUR 14 million (EUR 24 million). Net debt was EUR 741 million (EUR 743 million). This corresponds to a gearing ratio of 1.01 (0.84).

 

Personnel

The Group had 15,198 (14,885) employees at the end of March 2008.

 

New CEO appointed

Mr. Jukka Moisio was appointed by the Board of Directors as Huhtamäki Oyj's CEO, effective from April 1, 2008.

 

Resolutions taken by the Annual General Meeting

The Annual General Meeting (AGM) of Huhtamäki Oyj was held on March 31, 2008 in Helsinki, Finland. The meeting approved the Company's Financial Statements and the Consolidated Financial Statements for 2007 and discharged the Company's Board of Directors and the CEO from liability. The dividend for 2007 was set at EUR 0.42 per share (unchanged). To the Board of Directors were re-elected Ms. Eija Ailasmaa, Mr. George V. Bayly, Mr. Robertus van Gestel, Mr. Mikael Lilius, Mr. Anthony J.B. Simon and Mr. Jukka Suominen. Mr. Rolf Börjesson was elected as a new member to the Board of Directors. The Board of Directors elected Mikael Lilius as the Chairman of the Board and Jukka Suominen as the Vice Chairman of the Board. In addition, the Board of Directors resolved upon members of its committees for a term which lasts until the end of the Annual General Meeting following the election.

 

Events after the reporting period

Huhtamaki has completed the review of different strategic options for its operations in South Africa and for its Rigid Consumer Goods business unit in the UK. As a result of the review Huhtamaki has decided to continue its operations in South Africa. In the UK, Huhtamaki is aiming to cease production of rigid plastic consumer goods packaging due to volume decline as well as continued increases in manufacturing and energy costs. The Consumer Goods business unit is loss-making with annual net sales of around EUR 30 million. The annualized earnings improvement is expected to be EUR 3-4 million. A consultation process will start in relation to approximately 160 employees impacted at the Portadown and Gosport sites. Huhtamaki will continue to serve the UK Consumer Goods customers with specialty products, mainly paper based, from other Huhtamaki facilities. The manufacturing of foodservice products at the Gosport site will continue.

 

Huhtamaki has started union negotiations in Karlholmsbruk, Sweden, with the aim to close down the rigid packaging site. The annual net sales of the site are around EUR 4 million and it currently employs approximately 40 people. Huhtamaki intends to concentrate its EPS (Expanded Polystyrene) packaging business in Europe to the facility in Siemianowice, Poland, where similar production already exists. The customers of the site to be closed will be served from facilities in Poland and in Finland.

 

Short-term risks and uncertainties

Volatile raw material and energy prices as well as movements in currency translations are considered to be relevant short-term business risks and uncertainties in the Group's operations.

 

Outlook for 2008

The underlying Group EBIT in 2007 was EUR 136 million*. In 2008, Group EBIT is expected to be at this level before costs related to the planned closures of operations in the UK and Sweden. These costs are expected to have an approximately EUR 10 million adverse impact on EBIT. At approximately EUR 100 million, capital expenditure is expected to be significantly lower than in 2007.

 

 

Financial reporting in 2008

Huhtamaki will publish the interim report for January 1 - June 30, 2008 on July 18 and January 1 - September 30, 2008 on October 22.

 

Espoo, April 22, 2008

Huhtamäki Oyj

Board of Directors

 

For further information, please contact:

Mr. Jukka Moisio, 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. Minna Staffans, Head of Group Communications, tel. +358-10-686 7863 or mobile +358-50-527 6696

 

A news conference for analysts, investors and media will be held at 11:00 Finnish time at the head office, address Keilaranta 10, Espoo. CEO Jukka Moisio and CFO Timo Salonen will present the results. A conference call for analysts and investors will start at 16:00 Finnish / 14:00 UK / 09:00 New York time with a management presentation, followed by a question and answer session. To participate, please dial one of the following numbers 5-10 minutes prior to the call start:

- Number for participants from Finland: 0923 114 173

- Number for participants outside of Finland: +44 (0) 1452 555 566

- Conference ID: 42923097

All results materials will be available on 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 2007.

 

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, 2008:

 

- IFRS 8 Operating segments. IFRS 8 assumes that segment reporting reflects the Group's management and internal reporting structure. The five new segments are in line with Huhtamaki's internal management structure and will replace the former geographical segments.

- IFRIC 14 IAS 19 The Limit on a Defined Benefit Asset, Minimum Funding requirements and their Interaction. The interpretation provides guidance on assessing the amount of the surplus that can be recognized as defined benefit asset. It also explains how the pension asset or liability may be affected by a statutory or contractual minimum funding requirement.

 

These newly adopted standards have not had a material impact on the reported results.

 

Segments

Segment information is presented according to the IFRS tandards. Items below EBIT - financial items and taxes - are not allocated to the segments.

 

 

1) Q4 2007 includes goodwill impairment charges MEUR 8.3.

2) Q4 2007 includes restructuring charges MEUR 1.4, goodwill impairment charges MEUR 31.6 and tangible asset impairment charges MEUR 46.0.

3) Q4 2007 includes goodwill impairment charges MEUR 5.1 and tangible asset impairment charges MEUR 11.8.

4)  Q4 2007 includes restructuring charges MEUR 2.3 and goodwill impairment charges MEUR 1.6.

5) Q4 2007 includes restructuring charges MEUR 3.7, goodwill impairment charges MEUR 46.6 and tangible asset impairment charges MEUR 57.7, total amount MEUR 108.0.

 

 

 

6) Net assets include the following balance sheet items: intangible and tangible assets, other non-current assets, inventories, trade and other current receivables (excluding accrued interest income), other non-current liabilities and trade and other current liabilities (excluding accrued interest expense).

 

 

 

 

 

 

Share capital and shareholders

At the end of March 2008, the Company's registered share capital was EUR 358,657,670.00 (unchanged) corresponding to a total number of outstanding shares of 105,487,550 (unchanged) 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 (unchanged).

 

At the end of the reporting period there were 21,979 (22,033) registered shareholders.

Foreign ownership including nominee registered shares accounted for 22.5% (25.9%).

 

Share developments

The Company's share is quoted on the OMX Nordic Exchange Helsinki on the Nordic Mid Cap list under the Materials sector. At the end of March 2008, the Company's market capitalization was EUR 715.2 million (EUR 1,307.0 million) and EUR 680.9 million (EUR 1,244.3 million) excluding Company's own shares. With a closing price of EUR 6.78 (EUR 12.39) the share price decreased by 17% (-17%) from the beginning of the year, while the OMX Helsinki CAP PI Index decreased by 11% (+6%). In January-March 2008, the volume weighted average price for the Company's share was EUR 7.18 (EUR 13.30). The highest price paid was EUR 8.36 on January 2, 2008 and the lowest price paid was EUR 6.22 on March 17, 2008.

 

During the reporting period the cumulative value of the Company's share turnover was EUR 280.2 million (EUR 426.9 million). The trading volume of 39.1 million (32.1 million) shares equaled an average daily turnover of EUR 4.5 million (EUR 6.7 million) or, correspondingly 631,175 (501,172) shares. In total, turnover of the Company's 2003 A, B and C option rights was EUR 159,390, corresponding to a trading volume of 114,051.

 

 

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

 

 

Definitions for key indicators

 

Earnings per share = Result before taxes - minority interest - taxes / Average number of shares outstanding

 

Earnings per share (diluted) = Diluted result 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.)

 

Operating cash flow = EBIT + depreciation and amortization (including impairment) - capital expenditures + disposals +/- change in inventories, trade receivables and trade payables.

 

Shareholders' equity per share = Equity / Issue-adjusted number of shares at period end

 

Return on equity (ROE) = 100 x (Result for the period) / Equity + minority interest (average)

 

Return on investment (ROI) = 100 x (Result before taxes + interest expenses + net other financial expenses) / Balance sheet total - Interest-free liabilities (average)