Today Hartmann signed an agreement for the acquisition of Cascades Inc.'s activities as regards moulded-fibre retail egg cartons in the USA and Canada. Cascades has been no. 1 in this market in Canada and no. 2 in the USA for several years, and these positions will now be taken over by Hartmann. Following the acquisition, Hartmann will hold approx. 25% of the total market for moulded-fibre retail cartons in USA and Canada in which the competitor, Pactiv Corporation, has a market share of about 65%. Other competing products include plastic cartons, which account for about half of the total market for retail egg packaging and are supplied by one dominant manufacturer.
Cascades' cartons for the Canadian and US markets are manufactured at two production plants located in Brantford, Ontario in Canada and Palmer, Massachusetts in the United States. Both plants use older technology. After a transition period the production of egg packaging will therefore be transferred to a new plant established by Hartmann in Brantford, in an existing building purchased for this purpose.
The new plant in Brantford will be equipped with state-of-the-art machines from Hartmann Technology and this will make it the most modern plant in North America with high efficiency and strong competitiveness.
The total purchase price is approx. DKK 53 million, including DKK 11 million in net working capital and a goodwill of DKK 42 million. Further Hartmann plans to invest approx. DKK 165 million in the new production plant during a period of 18 months, bringing the total investment to approx. DKK 220 million to be financed by a draw on the Group's cash reserves and the establishment of a DKK 100 million credit facility.
Cascades will continue production and sales of its moulded-fibre 30-unit egg trays and cup carriers and will co-operate with Hartmann in these areas.
As part of the purchase price, Hartmann will take over operations at the existing plant in Brantford, Canada. The 110 employees will be transferred to the new plant over a period of two years in step with the starting-up of production activities.
It has been agreed that Cascades will produce egg cartons for Hartmann at the plant in Palmer, USA for a period of approx. 12 months until the new plant is ready for production. Hartmann will not generate earnings on sales in the USA until production is transferred to Hartmann.
The activities acquired by Hartmann in the USA and Canada generated a turnover in 2001 of approx. DKK 200 million.
Brantford was chosen as the location for Hartmann's new production plant after a careful analysis. It is an ideal location for supplying the markets in Canada and the USA and the present Cascades customers. Moreover, it is an advantage for Hartmann to be able to employ 110 experienced employees from the existing plant in Brantford.
Hartmann has secured a strong management team for its activities in North America with Eivind Rynning (59) as President. Eivind Rynning has been in charge of Pactiv Corporation's moulded-fibre activities in North America for a number of years, and for the past 6 months he has been employed by Hartmann, working on the preparation of plans for the Group's market entry.
Financial effect on the Hartmann Group
The establishment in North America is expected to become an attractive investment generating a return on capital employed considerably above the Group target of minimum 12% (before tax). When the new plant is fully operational during the second half of 2003 and the full effect as such is reflected in 2004, the operation is forecast to provide a yearly contribution to the Group's result as follows:
During the remaining part of 2002 and the first 6-9 months of 2003 Hartmann will integrate the company, establish and run in the new plant. A loss is therefore expected during this period. During 2002 and 2003 the investment will affect Group accounts as follow:
- In 2002 consolidated turnover is expected to increase by approx. DKK 35-40 million (turnover from the plant in Palmer, USA is not included during the 12 months in which Cascades produces for Hartmann). Consolidated turnover in 2003 is forecast at approx. DKK 140 million. Consolidated operating profit in 2002 is likely to decline by approx. DKK 5 million whereas 2003 is expected to turn into approx. DKK 5 million operating profit. Consolidated net profit after tax is likely to decline in both 2002 and 2003 by approx. DKK 5-10 million.
In March 2002, Hartmann announced its strategy for the Group's development towards 2006. An important precondition for the successful implementation of this strategy is the Group's ability to turn North America into its home market no. 2. Consequently, Hartmann has for some time been considering the possibility of setting up local production in the North American market, and with the above agreement the Group has taken the first decisive step toward the fulfilment of the strategy.
BRØDRENE HARTMANN A/S
Asger Domino Per V. Frederiksen
President & CEO Executive Director
The press release can also be downloaded from the following link:
