CSM: FY 2008 results were in line with expectations

Diemen / NL. (csm) 2008 was a very challenging year for CSM N.V., a combination of fluctuating raw material prices and recessionary pressures meant that EBITA fell by 13 percent to 133,1 million EUR. Although market conditions will clearly remain difficult in 2009, results will benefit from past and present initiatives. The balance sheet remains healthy and the proposed dividend is maintained at 0,88 EUR.

Summary 2008

• Net sales increased by 4,6 percent to 2’599,3 million EUR (2007: 2’485,6 million EUR). Autonomous growth was 9,7 percent.
• EBITA before exceptional items decreased by 20,6 million EUR or 13,4 percent to 133,1 million EUR. At constant exchange rates, EBITA was 140,8 million EUR (minus 8,4 percent).
• Raw material cost increases absorbed by higher selling prices and additional cost savings.
• Realized 3-S savings increased to 129 million EUR, exceeding planned savings of 110 million EUR.
• Brill back on track, Germany reorganized and showing first positive effects.
• New Purac manufacturing footprint successfully implemented. Purac signed up three commercial customers for bioplastics.
• Cash flow from operating activities 98,5 million EUR; impacted by additional working capital. Working capital improvement significant in second half of 2008.
• Healthy balance sheet ratios. At the end of 2008 the net debt position was 2,8 x EBITDA and the interest cover was 4,9; well within the limits of financing covenants.
• Proposed dividend at 0,88 EUR per share, half in stock half in cash.

Impact of economic downturn

• Bakery Supplies impacted in second half of 2008, leading to volume declines of five percent, partly due to one-off de-stocking effect.
• Purac felt the effects of the crisis particularly in fourth quarter, with volumes dropping from six percent positive in third quarter to two percent negative in fourth quarter as a result of de-stocking and lower sales to customers active in some of the more cyclical business segments.

Key figures in million EUR	2008	2007
Net sales from continuing operations	2’599,3	2’485,6
EBITA before exceptional items	133,1	153,7
Exceptional items incl. in EBITA	19,8	88,3
EBITA (1)	113,3	65,4
Result before taxes from continuing operations	78,4	40,2
Result from discontinued operations (2)		146,7
Result after taxes	90,0	202,8
EPS in EUR	1,39	3,06
EPS from continuing operations in EUR	1,39	0,82
ROS before exceptional items in percent	5,1	6,2
ROCE before exceptional items incl. goodwill in percent	7,2	8,4

(1): EBITA: the operating result before amortization of intangible fixed assets.
(2): The result from discontinued operations includes the result of CSM Sugar and the proceeds from the sale of CSM Sugar.

CEO Gerard Hoetmer: «The current worldwide economic environment has impacted the overall growth of our business, in particular in the second half of 2008. Lower demand was caused by a recessionary effect of down scaling and a one-off effect of de-stocking. Purac was particularly impacted in the fourth quarter by the lower demand in some of its more cyclical end user markets. In the unfavorable market conditions we did not manage to improve on our results for 2007. However our business foundations are solid and we improved our competitive position.

At this moment, it is difficult to see how long this trend of recessionary volume decline of the latter part of 2008 will continue. Although we will not be able to mitigate the full effect of the economic downturn in the short term, we have two important instruments at our disposal – flexibility in bringing down cost levels and adjustments to our product offering to meet changing demands – to reduce significantly the negative impact. Also, raw material prices have fallen sharply from the peaks seen in 2008, which should be beneficial for our margin development.

With regard to cost efficiency, we have been very active in the past three years to bring about a turnaround at CSM, resulting in over delivery on our 3-S cost saving program, generating savings of 129 million EUR.

We will continue to improve efficiencies and reduce costs in our businesses with our announcements to implement further restructurings in the UK and Belgium indications of our resolve. We continue to focus on making efficiency improvements in all our businesses, both in procurement and organizational costs.

Our activities remain cash generative and our strong focus for 2009 will be to enhance these cash generating capabilities further. Our cash requirements will be reduced through working capital actions and capital expenditure reductions for our ongoing business activities. Our decision to refinance in 2007 and 2008 gives us a solid financing position, now and in the years ahead.

Over the past years, we have steadily moved from just being a supplier to becoming a partner for our customers. In our industry we are the only company with a global presence and one which has invested substantially to support our customers with innovative products and value-adding services. I strongly believe that our innovative power is one of our cornerstones that attracts customers. This is shown by the substantial growth in the premium Bakery out-of-home markets, e.g. coffee chains, even though this segment is under pressure. Purac leading the development of bioplastics and continuously securing new customers is another example.

We are proud to be the leading global company in Bakery Supplies and lactic acid. Even in these challenging times we see opportunities to strengthen our market leadership. I am confident that the crisis will help us gain market share and, if the right opportunities arise, also to make value-adding bolt-on acquisitions.

2009 will be a year of continuous hard work to respond effectively to the challenging economic circumstances ahead, but consistent with our strategic framework to be an efficient and innovative market leader and a financially healthy company. We remain committed to achieving our financial goal of 12percent ROCE».

Financial Commentary 2008

Net sales: increased by 4,6 percent to 2’599,3 million EUR (2007: 2’485,6 million EUR). The 2008 sales figures were impacted by exchange rate differences to an amount of 120,8 million EUR negative, especially due to the weaker US Dollar. The net effect of acquisitions and divestments was 13,6 million EUR positive, mainly due to the 2008 acquisition of Harden Fine Foods and the various acquisitions and divestments in 2007. Adjusted for currency effects and acquisitions / divestments, autonomous growth was 9,7 percent.

Breakdown of autonomous growth:
Bakery Supplies North America	14,0 percent
Bakery Supplies Europe	05,7 percent
Purac	08,2 percent

EBITA before exceptional items decreased by 20,6 million EUR, or 13,4 percent, to 133,1 million EUR. Translation of our income in foreign currencies to the Euro impacted our results negatively by 7,7 million EUR. Our raw material costs increased by 175 million EUR, this is after 3-S related procurement savings of 18 million EUR. The extra costs were successfully compensated by increased selling prices. Volumes sold in 2008 decreased by 1,5 percent due to the recessionary environment, negatively impacting our EBITA by 7,0 million EUR. Due to the extra days in 2008, EBITA of Bakery Supplies North America were positively impacted by 0,7 million EUR.

Restructuring: The additional restructuring savings in 2008 amounting to 13 million EUR were partly the result of the full year savings of reorganization started in 2007; the closure of our Italian bakery factory in Crema, the closure of the Elk Grove Village factory in Chicago, and the reorganization at our bakery fats plant in Merksem (Belgium). Next to these savings the main new restructurings that contributed to the 13 million EUR additional savings were the shift of all fruit fillings from our French factory to the factory in Goes the Netherlands and the reorganization of our German operation.

The total restructuring charges arising from the 3-S Program ended at 109 million EUR, comparing favorably to the expected amount of 120 million EUR. The addition in 2008 was 12,0 million EUR recorded as exceptional income and charges. Exceptional income and charges in 2008 also included restructuring charges of new non 3-S related reorganizations at Brill of 1,9 million EUR and at our European bakery activities in Belgium and the UK of 1,9 million EUR. A negative correction on the book profit of the sale of QA in 2007 of 1,8 million EUR was recorded as an exceptional expense.

Info: Annual results CSM 2008: EBITA in line with outlook – CSM well placed for a challenging year ahead – complete press release – PDF – 214 KB – 29 pages.