CSM: shows strong Ebita increase in Q2/2010

Diemen / NL. (csm) CSM N.V. delivered an increased Ebita of 55,8 million EUR (plus 37 percent) in the second quarter 2010, excluding one-off acquisition and integration costs (4,4 million EUR). The improved Ebita resulted from the acquisition of Best Brands, a favourable underlying margin development, and currency effects. Sales increased by 19 percent, driven by growth at Purac and the acquisition of Best Brands. Key Facts:

• Sales for the second quarter increased by approximately 19 percent to 771,7 million EUR (2009: 647,6 million EUR). The acquisition of Best Brands contributed strongly with 100,3 million EUR. Organic growth was minus 0,8 percent due to a lower sales volume. Sales for the first half-year were up by approximately ten percent at 1’415,8 million EUR (2009: 1’283,7 million EUR). The acquisition effect was 118,7 million EUR; organic sales growth was virtually flat at minus 0,1 percent, due to a lower volume at Bakery Supplies.
• Ebita in the second quarter amounted to 55,8 million EUR, excluding one-off integration and acquisition costs of Best Brands, up 15,2 million EUR compared with the same period in 2009. For the first half-year Ebita amounted to 102,5 million EUR (2009: 60,7 million EUR).
• Net debt at the end of June amounted to 761,5 million EUR, an increase of 433,2 million EUR compared with December 31, 2009; largely due to the Best Brands acquisition.
• Net debt/Ebitda ratio is 2,6 times (year-end 2009: 1,6 times).

Commenting on the second quarter results …

CEO Gerard Hoetmer: «We are proud to see, in line with our expectations, our businesses continuing their positive underlying profit trend during the second quarter. Purac continued its strong ongoing performance showing substantial organic growth and contributing strongly to a more than doubled Ebita. Although the markets of our Bakery Supplies activities were impacted by volatile consumer behaviour, our bakery supplies activities improved Ebita as a result of good margin and cost management.

In Bakery Supplies, growth in core countries such as the UK and Germany was not enough to compensate for declining sales in Southern and Eastern European countries. Maintaining our profitability in those countries whose economies are severely hit is our main objective. Innovations are essential for the future. We see it as recognition of our continued investments that our US ingredient business Caravan has received the prestigious IFT food innovation award. The integration of Best Brands is progressing according to plan. The two merged businesses continue their operations under the name of CSM Bakery Products North America, which further leverages the commercial exposure of CSM being the leader in its industry. The progress of our integration plan strengthened our confidence that we will certainly realize the communicated savings. In addition, during the integration process our belief is reinforced that the new entity will have an additional organic growth opportunity from its enhanced product and client offering. This will result in additional profitable sales opportunities, underpinning our ambition to grow our sales at one to two percent above market growth.

At Purac we saw a particularly strong performance in volume development combined with good margin management. Purac´s innovation pipeline is well developed, anticipating clear trends such as «clean label preservation solutions» and «food safety». Purac successfully launched new products in these areas, which in combination with recovering markets, for example the chemical industry, boosted volume developments.

We have amongst others established a cooperation between Purac, Unilever and Huhtamaki to jointly explore the development and application of second and third generation bio-polymers, not competing with food sources and not impacting green house gas emissions negatively (full life cycle analysis). The three companies have a complementary position in the supply chain; Purac will bring unique technologies into the cooperation, Huhtamaki is a leading company in developing and producing packaging materials and solutions, and Unilever is a global leading company in consumer products, committed to sustainability. This cooperation creates a perfect platform to speed up the development process of sustainable packaging solutions to meet the growing consumer demand for these products.

In addition, CSM is developing with Huhtamaki the use of bio-plastic packaging materials for our Bakery Supplies products to anticipate the commitment that a number of our major customers made to a sustainable environment. Overall we are proud of our achievements and look forward to achieving the next milestones of our strategic journey, in an environment which is still seeing the effects of the economic crisis».

Prospects for the Second Half-Year of 2010

After the good performance in the first half of 2010 CSM remains cautiously optimistic for the second half of 2010. The global player expects to see a continuing challenging economic environment. In addition, the group expects to see cost increases in a number of our raw materials. CSM has developed a highly professional procurement organization which enables the company to mitigate volatility in raw material costs with its cover positions and allows CSM to manage the effects of raw material price variances in its pricing strategy.

At the same time, CSM expects to see the benefits of its actions in innovation and marketing as well as the positive effect of its acquisition strategy. CSM remains optimistic about both the short-term and long-term growth opportunities for Purac. However, these opportunities will require additional investments in its organization and innovation for projects such as bio-plastics which will affect the Ebita increase at Purac in the second half of 2010. Furthermore, the group expects consumer confidence, one of the drivers of volume growth at Bakery Supplies, to remain under pressure.

Overall, the group expects Ebita in the second half of 2010 to show an improvement compared with the second half-year of 2009. The improvement will be less significant compared to the first half-year results due to a stronger comparison base in the second half of 2009. For Q3 CSM also expects Ebita to substantially improve over Q3/2009 (excluding one-off costs Best Brands). Ordinary capital expenditures will be below depreciation. The group´s estimate for the investment in its Thai lactide factory remains at 25 million EUR for 2010, of which 6,3 million EUR was spent in the first half-year. Working capital as a percentage of sales is expected to decline as previously indicated.

Info: The press release «CSM shows strong Ebita increase in Q2/2010» (PDF, 20 pages, 191 KB) is available on CSM´s web server. Please click here.