Interim Report January 1 - March 31, 2009: Earnings well above the previous year in spite of lower sales

STOCK EXCHANGE RELEASE HUHTAMÄKI OYJ 23.4.2009 AT 8:30

 

- Group net sales dampened by economic downturn and customer cautiousness

- Earnings improved due to successful cost containment, better operational control as well as price and mix management

- Free cash flow continued strong, debt reduced further

- Full year sales outlook remains uncertain and pressure on margins is expected to increase during the course of the year

 

 

Overview

The demand for consumer packaging was characterized by uncertainty and customer cautiousness in the beginning of the year. Although majority of the Group's segments are considered to be of a defensive nature with mainly food and personal care related packaging products, sales were not immune to the economic downturn. Sales suffered severely in Films Global segment with industrial applications.

 

Operating earnings for the reporting period were well above the corresponding period in 2008 in spite of lower sales. Earnings improved due to successful cost containment, better operational control as well as price and mix management. Cost containment was aided by lower raw material prices and significant headcount reduction with approximately 900 employees less than a year ago. Profitability improved markedly in North America, Rigid Consumer Goods Plastics and Flexibles Global segments.

 

Cash flow generation was good and further reduction of net debt was achieved. On a rolling 12 month basis, return on investment (ROI) was still negative reflecting significant non-recurring charges in 2008.

 

 

Business review by segment

The new segment structure for financial reporting was adopted as of January 1, 2009. The sales distribution by segment is the following: Flexibles Global 24% (23%), Films Global 8% (9%), North America 25% (21%), Rough Molded Fiber Global 10% (10%), Foodservice Europe-Asia-Oceania 19% (19%) and Rigid Consumer Goods Plastics 14% (17%).

 

Flexibles Global

Flexibles business is organized as a global segment. Flexibles are used for consumer packaging of a wide range and variety of food, personal and health care and other products.

 

 

Sales within the segment declined during the reporting period. In Europe sales were negatively affected by weak demand in certain market segments such as pet food packaging and tube laminate. In Asia-Oceania sales were at the level of the corresponding period in 2008 but the development by market was mixed.

 

Improved profitability reflects lower costs and better operational control achieved especially in smaller units.

 

The discontinuation of the loss-making flexible packaging operations in Malvern, USA, will be finalized by the end of the first half of 2009.

 

Films Global

Films business is organized as a global segment. 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 within the segment suffered from weak demand of industrial applications. The consumer related products were more resilient to the economic downturn.

 

Despite the volume shortfall profitability remained at the level of the corresponding period in 2008 due to cost reduction efforts and better operational control.

 

During the reporting period the release paper business with annual net sales of EUR 30 million in Forchheim, Germany was sold to B. Laufenberg GmbH. The business will be gradually transferred to the buyer by the end of the first quarter 2010. Following the divestment and further focus on release films, a social plan discussion with the works council concerning approximately 100 permanent employees has been started.

 

North America

The segment includes the Rigid and Molded Fiber business in North America and Mexico. Rigid paper and plastic packaging, which serves ice-cream and other consumer goods as well as foodservice markets, is completed with Molded Fiber Chinet® disposable tableware products.

 

 

Sales in constant currencies were at the level of the corresponding period in 2008. Retail, Frozen desserts and Foodservice distribution as well as Mexico showed growth. Sales development in other market segments was weak, partially as a result of product portfolio optimization.

 

The clear improvement in profitability reflects strong market positions, better mix and lower costs. Also, currency translation impact was favorable.

 

The closure of the rigid plastics site in Phoenix, USA, is ongoing with completion expected by the end of the first half of 2009.

 

Rough Molded Fiber Global

The segment includes the Rough Molded Fiber business in Europe, Oceania, Africa and South America. Rough molded fiber is used to make fresh product packaging, such as egg and fruit packaging.

 

Sales growth was achieved in constant currencies and excluding ancillary operations. Demand for egg packaging was good ahead of the seasonally important Easter period. Regionally, performance in South America and Africa was favorable.

 

Profitability was stable reflecting lower costs offset by adverse currency impact and volume shortfall in ancillary operations, which include the machine and waste paper trade businesses.

 

Foodservice Europe-Asia-Oceania

Foodservice paper and plastic disposable tableware is supplied to foodservice operators and fast food restaurants.

 

 

Reported net sales declined mainly due to adverse currency translation impact. Sales growth has slowed down in Eastern Europe. Sales in Asia were below the level of the corresponding period in 2008, while growing in Oceania.

 

Profitability was stable reflecting lower costs, better operational control in Asia as well as price and mix management offset by adverse currency impact.

 

During the reporting period it was decided to optimize the rigid packaging production in Asia and to close down the production unit in Balakong, Malaysia. The Group's new facility in Guangzhou, China, will continue to serve Foodservice customers in Southeast Asia. The restructuring process at the Balakong facility will impact approximately 70 employees. The closure of the site is expected by the end of the third quarter 2009.

 

Rigid Consumer Goods Plastics

The segment includes the Rigid Consumer Goods Plastics business in Europe, Oceania and South America. Rigid plastic packaging serves the consumer goods markets with fresh food, dairy, ice cream and edible fats packaging.

 

 

Sales within the segment declined in most markets.

 

The clear improvement in profitability reflects better operational control, lower costs and the elimination of the loss-making UK business.

 

A strategic review of the operations is ongoing.

 

 

Financial review

The Group EBIT for the reporting period was EUR 35 million (EUR 20 million), corresponding to an EBIT margin of 6.9% (3.6%).

 

The net financial items were unchanged at EUR -9 million. Tax expense was EUR 5 million (EUR 2 million).

 

The result for the period was EUR 21 million (EUR 9 million) and the earnings per share (EPS) were EUR 0.18 (EUR 0.09). The average number of outstanding shares used in the EPS calculations was 100,426,461 (unchanged) excluding 5,061,089 (unchanged) of the Company's own shares.

 

Balance sheet and cash flow

Free cash flow for the reporting period amounted to EUR 37 million (EUR -12 million). The strong improvement was due to higher earnings, lower capital expenditure and prudent working capital management. North America and Flexibles Global segments were most successful in generating cash flow. Capital expenditure was EUR 8 million (EUR 14 million).

 

Net debt was EUR 561 million (EUR 741 million) at the end of March 2009. This corresponds to a gearing ratio of 0.77 (1.01). Total assets on the balance sheet were EUR 1,930 million (EUR 2,160 million).

 

 

Personnel

The Group had 14,294 (15,198) employees at the end of March 2009.

 

 

Resolutions of Huhtamäki Oyj's Annual General Meeting of Shareholders

Huhtamäki Oyj's Annual General Meeting of Shareholders (AGM) was held in Helsinki on April 3, 2009. The meeting adopted the Company's Annual Accounts and the Consolidated Annual Accounts for 2008 and discharged the members of the Company's Board of Directors and the CEO from liability. As proposed by the Board of Directors dividend for 2008 was set at EUR 0.34 per share compared with EUR 0.42 paid for the previous year. The AGM granted the Board of Directors an authorization to resolve upon conveyance of the Company's own shares. The authorization is valid until April 30, 2012.

 

Eight members of the Board of Directors were elected for a term which lasts until the end of the AGM following the election. To the Board of Directors were re-elected Ms. Eija Ailasmaa, Mr. George V. Bayly, Mr. Rolf Börjesson, Mr. Robertus van Gestel, Mr. Mikael Lilius, Mr. Anthony J.B. Simon and Mr. Jukka Suominen. Ms. Siaou-Sze Lien was elected as a new member to the Board of Directors. The Board of Directors elected Mikael Lilius as Chairman of the Board and Jukka Suominen as 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 AGM following the election.

 

 

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. Material changes in general economic conditions or in the financial markets could have an adverse effect on the implementation of the Group's strategy and on its business performance and earnings.

 

 

Outlook for 2009

Full year sales outlook remains uncertain and pressure on margins is expected to increase during the course of the year.

 

In the short-term, price and mix management, supply chain initiatives, control over costs and capital spending, positive cash flow generation and net debt reduction continue as key focus areas within the Group. Capital expenditure in 2009 is expected to be below EUR 100 million.

 

 

Financial reporting in 2009

Huhtamaki will publish the interim report for January 1 - June 30, 2009 on July 23.

 

 

Espoo, April 22, 2009

Huhtamäki Oyj's 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

 

A news conference for analysts and media will be held at 11:00 Finnish time at the head office, address Keilaranta 10, Espoo, Finland. CEO Jukka Moisio and CFO Timo Salonen will present the results, after which a buffet lunch is served. A conference call for analysts and investors will start at 14:00 Finnish / 12:00 UK / 07:00 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: 94581702

All results materials will be available 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.

 

 

Huhtamäki Oyj

January 1 - March 31, 2009

 

Group income statement (IFRS)

Unaudited

 

 

Group statement of comprehensive income (IFRS)

 

 

 

Group statement of financial position (IFRS)

Unaudited

 

 

Statement of changes in equity

Unaudited

 

 

Group cash flow statement (IFRS)

Unaudited

 

 

NOTES FOR THE INTERIM REPORT

 

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 2008.

 

Changes in accounting principles

 

The Group has adopted the following IFRS standards and interpretations considered applicable to Huhtamaki, with effect from January 1, 2009:

 

- IAS 23 Borrowing cost. The amendment requires capitalization of borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset as part of the cost of asset.
- IAS 1 Presentation of Financial Statements -amendment. Amended standard has changed the presentation of income statement and statement of changes in shareholders' equity.
- IFRIC 13 Customer Loyalty Programmes. The interpretation addresses the accounting by entities that operate customer loyalty programmes with their customers.

 

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

 

Segments

 

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

 

 

Net sales

 

 

EBIT

 

 

1) Q4 2008 includes includes restructuring charges MEUR 1.7, goodwill impairment charges MEUR 7.4 and tangible asset impairment charges MEUR 8.8.

2) Q4 2008 includes restructuring charges MEUR 2.0 and tangible asset impairment charges MEUR 3.2.

3) Q4 2008 includes goodwill impairment charges MEUR 3.7.

4) Q4 2008 includes restructuring charges MEUR 3.3, goodwill impairment charges MEUR 7.1 and tangible asset impairment charges MEUR 4.1.

5) Q4 2008 includes restructuring charges MEUR 2.3, goodwill impairment charges MEUR 54.1 and tangible asset impairment charges MEUR 60.9, Q3 2008 includes restructuring charges MEUR 0.1, Q2 2008 includes restructuring charges MEUR 6.8.

6) Q4 2008 includes restructuring charges MEUR 9.3, goodwill impairment charges MEUR 72.3 and tangible asset impairment charges MEUR 77.0, Q3 2008 includes restructuring charges MEUR 0.1, Q2 2008 includes restructuring charges MEUR 6.8, total amount MEUR 165.5.

 

Depreciation and amortization

 

 

Net assets allocated to the segments (7

 

7) 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).   

 

Capital expenditure

 

 

RONA, % (12m roll.)

 

 

Operating Cash Flow

 

 

As net sales and EBIT of reportable segments form Groups' total net sales and EBIT, reconciliations to corresponding amounts are not presented.         

 

Other information

 

 

Share capital and shareholders

 

At the end of March 2009, 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 had the total accountable par value of EUR 17,207,702.60, representing 4.8% of the total number of shares and voting rights.

The amount of outstanding shares net of Company's own shares was 100,426,461 (unchanged).

 

There were 22,186 (21,979) registered shareholders at the end of the reporting period. Foreign ownership including nominee registered shares accounted for 23.0% (22.5%).

 

Share developments

The Company's share is quoted on the NASDAQ OMX Helsinki Ltd on the Nordic Mid Cap list under the Materials sector.

 

At the end of March 2009, the Company's market capitalization was EUR 540.1 million (EUR 715.2 million) and EUR 514.2 million (EUR 680.9 million) excluding Company's own shares. With a closing price of

EUR 5.12 (EUR 6.78) the share price increased by 16% (-17%) from the beginning of the year, while the OMX Helsinki Cap PI Index decreased by 13% (-11%) and the OMX Helsinki Materials PI Index decreased by 34% (-11%). During the reporting period the volume weighted average price for the Company's share was EUR 5.32 (EUR 7.18). The highest price paid was EUR 6.07 on February 16, 2009 and the lowest price paid was EUR 4.46 on January 2, 2009.

 

During the reporting period the cumulative value of the Company's share turnover was EUR 83.9 million (EUR 280.2 million). The trading volume of 15.7 million (39.1 million) shares equaled an average daily

turnover of EUR 1.4 million (EUR 4.5 million) or, correspondingly 253,101 (631,175) shares.

 

In total, turnover of the Company's 2003 A, B and C as well as 2006 A option rights was EUR 46,818 corresponding to a trading volume of 136,120.

 

Contingent liabilities

 

 

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 - hybrid bond interest - taxes / Average number of shares outstanding

 

Earnings per share (diluted) = Diluted result before taxes - minority interest - hybrid bond interest - taxes / Average fully diluted number of shares outstanding

 

Net debt to equity (gearing) = Interest bearing net debt / Equity + minority interest + hybrid bond (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 ) (12 m roll.) / Equity + minority interest + hybrid bond (average)

 

Return on investment (ROI) = 100 x (Result before taxes + interest expenses + net other financial expenses) (12 m roll.) / Balance sheet total - Interest-free liabilities (average)