Interim Report January 1 - June 30, 2007

 | Source: Huhtamäki Oyj Huhtamäki Oyj

HUHTAMÄKI OYJ STOCK EXCHANGE RELEASE JULY 19, 2007 AT 8:00 
 
Continued solid performance in Americas and Global Flexibles - as anticipated Group earnings down due to significantly lower royalty income in corporate net
 
* In Europe robust sales growth in Flexibles, Molded Fiber and Foodservice; decline in profitability
 
* In Americas strong result despite adverse currency translations impact supported by diligent price management and operational efficiency
 
* In Oceania improved performance and in Asia favorable volume development
 
* Group EBIT reflects reduction of corporate net due to lower royalty income particularly in the second quarter
 



* The underlying EBIT excludes restructuring charges
 
Business review
In the second quarter, market demand for consumer packaging continued stable in the mature markets and healthy in the emerging markets. While overall demand was on a similar level to last year, the increasing raw material prices require continuous efforts to pass the cost pressure upstream as well as improve productivity. The prices for the main raw materials remained on a high level during the quarter, showing a clear increase compared to the average level of the previous year.
 
Price/mix changes had a positive impact (+3%), while volume development was moderate. These are not fully reflected in reported net sales of EUR 606.1 million (+2%) due to unfavorable movement in currency translations (-2%).
 
For the first half of the year, net sales was EUR 1,170.8 million (+1%). The geographical distribution of sales was the following: Europe 53% (52%), Americas 30% (32%) and Asia-Oceania-Africa 17% (16%).
 
Europe



 
In Europe, sales growth within Consumer Goods segment was robust in the Flexibles and Molded Fiber businesses in the second quarter, while the Films business was impacted by the implementation of the new enterprise resource planning (ERP) platform. The sales performance in the Rigid business was varied with Germany and Eastern Europe at the top end, while the UK was at the low end. Within Foodservice segment, healthy sales growth was driven by success in Eastern Europe. For the quarter, the reported net sales was EUR 320.3 million (+3%) with a positive impact from price/mix changes (+3%) and a slight decline in volume (-1%).
 
The region's underlying EBIT was EUR 14.7 million (-26%), corresponding to an EBIT margin of 4.6% (6.4%). This reflects margin pressure experienced by continued increase in raw material costs as well as temporarily weaker profitability of the Films business. The reported EBIT was EUR 14.7 million. In the previous year the reported EBIT of EUR 16.4 million included restructuring charges of EUR 3.5 million.
 
For the first half of the year, net sales was EUR 625.2 million (+4%). The underlying EBIT of EUR 28.3 million (-16%) corresponded to an EBIT margin of 4.5% (5.6%). The reported EBIT was 28.3 million (EUR 26.7 million).
 
Americas



 
In the Americas, within Foodservice segment sales in Retail stabilized at a good level in the second quarter. The new product launches received a positive market reaction. Within Consumer Goods segment, sales in the Frozen desserts category accelerated during the quarter after a slower start to the year, while the reverse took place in the Flexibles business. In South America, sales growth picked up after a stable beginning of the year. For the quarter, the positive impact from price/mix changes (+4%) more than compensated for the slight decline in volume (-1%). The reported net sales of EUR 185.2 million (-3%) was depressed by currency translations (-6%).
 
The region's underlying EBIT was EUR 20.2 million (+3%), corresponding to an EBIT margin of 10.9% (10.3%). This reflects diligent price management and continued improvement in operational efficiency.
 
For the first half of the year, net sales was EUR 348.9 million (-5%). The underlying EBIT of EUR 38.7 million (+16%) corresponded to an EBIT margin of 11.1% (9.1%).
 
Asia-Oceania-Africa



 
In Asia-Oceania-Africa, sales performance within Consumer Goods and Foodservice segments was robust during the second quarter. In Oceania, sales growth was driven by the Rigid business where the improvement seen already in the beginning of the year accelerated during the second quarter. In Asia, volume growth remained favorable driven by the Flexibles businesses in India and Thailand. For the quarter, volume growth continued strong (+7%) and there was a positive impact from price/mix changes (+2%). The reported net sales of EUR 100.6 million (+10%) was boosted further by currency translations (+1%).
 
The region's underlying EBIT was EUR 5.3 million (+29%), corresponding to an EBIT margin of 5.3% (4.5%). This reflects margin improvement in Oceania mitigated by start-up costs associated with investments in new capacity.
 
For the first half of the year, net sales was EUR 196.7 million (+6%). The underlying EBIT of EUR 11.0 million (+7%) corresponded to an EBIT margin of 5.6% (unchanged).
 
Financial review
In the second quarter, the underlying EBIT before corporate items was EUR 40.2 million (-8%), corresponding to an EBIT margin of 6.6% (7.3%). Corporate net was EUR -4.5 million (EUR 9.6 million) reflecting the significant reduction in royalty income as well as higher corporate expenses.
 
The underlying Group EBIT was EUR 35.7 million (EUR 53.2 million), corresponding to an EBIT margin of 5.9% (9.0%). The reported EBIT was EUR 35.7 million. In the previous year the reported EBIT of EUR 49.8 million included restructuring charges of EUR 3.4 million.
 
At EUR -11.0 million (EUR -10.3 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 19.4 million (EUR 33.3 million), and EPS was EUR 0.19 (EUR 0.33).
 
For the first half of the year, the Group's underlying EBIT was EUR 73.4 million (-22%), corresponding to an EBIT margin of 6.3% (8.1%). This reflects mainly a EUR 21.2 million reduction in corporate net. The reported EBIT was 73.4 million. In the previous year the reported EBIT of EUR 87.0 million included restructuring charges of EUR 7.1 million. Net financial items were EUR 20.2 million (EUR 18.4 million). The income tax expense was EUR 9.6 million (EUR 11.3 million), corresponding to a tax rate of 18.0% (16.4%). The reported profit for the period was EUR 43.8 million (EUR 57.5 million), and EPS was EUR 0.43 (EUR 0.57).
 
The average number of outstanding shares used in the EPS calculation was 100,426,461 (98,810,850) excluding 5,061,089 (unchanged) company's own shares.
 
On a rolling 12-month basis, the return on investment (ROI) was 9.1% (9.5%) and return on equity (ROE) was 9.6% (11.2%).
 
Balance sheet and cash flow
In the end of the second quarter, free cash flow of EUR -6.3 million (EUR 18.8 million) was impacted by an elevated level of working capital. In addition, capital expenditure increased to EUR 31.5 million (EUR 27.3 million). For the first half of the year, free cash flow was EUR -42.7 million (17.7 million) with capital expenditure of EUR 57.1 million (EUR 46.0 million).
 
Net debt at the end of the second quarter was EUR 796.7 million (EUR 692.4 million), corresponding to a gearing ratio of 0.92 (0.85).
 
Major change programs and investments
Key priorities for this year include progress on earlier announced change programs and development of growth platforms. During the second quarter, it was decided that a new flexibles packaging facility will be built close to the existing facility in Bangkok, Thailand. The aim is to capture growth opportunities by supplying the local and multinational food and consumer goods industry with advanced flexibles packaging. According to the preliminary schedule production at the new site will commence around mid 2008. The value of the investment is approximately EUR 17 million.
 
With reference to the earlier announced programs, the exit from the rigid packaging site in Göttingen, Germany, took place during the quarter. The capacity expansion in Foodservice hot beverage cups in several European units progressed and will be completed by year-end 2007. The new capacity added to the existing flexibles packaging facility in Malvern, USA, is scheduled to be operational during the second half of 2007. The relocation from Hong Kong, China, to the new rigid packaging facility in Guangzhou, China, is expected to be completed during the first quarter of 2008.
 
Additionally, reduction of working capital and targeted allocation of capital expenditure will have a high priority during the second half of the year.
 
Personnel
The Group had 15,129 (15,004) employees on June 30, 2007.
 
Changes in management
Timo Salonen was appointed as Chief Financial Officer with effect from July 1, 2007. He succeeded Sakari Ahdekivi, who joins another company.
 
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
A clear improvement is expected in the operational result, which should largely balance out the significant reduction in corporate net due to lower royalty income. The underlying EBIT for the full-year is estimated to be close to the level of 2006. Increase in net financial items and higher tax rate will have an impact on earnings.
 
Capital expenditure is expected to be somewhat lower than in 2006 with emphasis on organic growth investments.
 
This interim report is unaudited.
 
Espoo, July 18, 2007
Huhtamäki Oyj
Board of Directors
 
The Q3 2007 interim report will be published on October 25, 2007.
 
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 in 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: 6206111

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.
 
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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 (354,306,472.40) corresponding to a total number of outstanding shares of 105,487,550 (104,207,786). This includes 5,061,089 (unchanged) company's own shares, which represent 4.8% of the total number of shares. The net figure of outstanding shares was 100,426,461 (99,146,697).
 
At the end of June there were 21,025 (20,795) registered shareholders. Nominee registered shares including foreign ownership accounted for 27.3% (23.0%).
 
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 June, the company's market capitalization was EUR 1,310.2 million (EUR 1,447.4 million) and EUR 1,247.3 million (EUR 1,377.1 million) excluding company's own shares. With a closing price of EUR 12.42 (EUR 13.89) the share price decreased by 17% (0%) from the beginning of the year, while the OMX Helsinki CAP PI Index increased by 13% (+6%). In January-June, the volume weighted average price for the Huhtamaki share was EUR 13.14 (EUR 14.79). The highest price paid was EUR 15.89 on January 15, 2007 and the lowest price paid was EUR 12.01 on March 14, 2007.
 
During the first six months, the cumulative value of the Huhtamaki share turnover was EUR 703.8 million (EUR 587.2 million). The trading volume of 53.6 million (39.7 million) shares equalled an average daily turnover of EUR 5.7 million (EUR 4.7 million) or, correspondingly 432,116 (320,005) shares.
 
In total, turnover of the company's 2003 A, B and C option rights was EUR 2.7 million, corresponding to a trading volume of 586,355.
 





 





 
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 January 1 - June 30, 2007 (pdf)

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