CSM: reports 13 percent higher Ebita for 2009

Diemen / NL. (csm) CSM N.V. improved Ebita substantially despite the recessionary environment. The effects of lower sales volumes have been compensated by cost savings, recovery of margins through lower cost of raw materials and continued improvements in operational efficiencies. Strict cash management generating free cash flow of 277,2 million EUR, resulted in our net debt falling to 328 million EUR. CSM´s balance sheet strength allows for investment in a new lactide plant in Thailand to fuel our organic growth as well as the announced acquisition of Best Brands in North America. Key facts:

• Sales in 2009 were 1,7 percent lower compared to 2008. Currency effects, mainly US-Dollar driven, were positive by 39,3 million EUR. Organic sales growth was 3,3 percent negative due to lower sales volume.
• Ebita before exceptional items for the full year increased with 13,1 percent to 150,6 million EUR compared to 133,1 million EUR in 2008. Currency effects were positive by 5,8 million EUR. Fourth quarter Ebita was in line with the annual trend of 2009.
• Working capital decreased by 103,5 million EUR to 191,3 million EUR compared with year-end 2008, mainly as a result of lower inventories.
• Cash flow from operating activities increased by 178,7 million EUR to a total of 277,2 million EUR.
• Net debt amounted to 328 million EUR, a reduction of 200 million EUR. Our net debt / Ebitda ratio is 1,6 (2,8 in 2008).

Key figures

CEO Gerard Hoetmer: «Although we experienced a slow start, I am very satisfied with our strong performance in the second half of the year which resulted in a substantially improved Ebita with 13 percent for the full year 2009. In particular Purac and Bakery Supplies North America showed a strong performance and delivered substantially improved results. Bakery Supplies Europe improved during the year. The impact of the recession on volume development lessened over the course of 2009 albeit there remained a degree of volatility in demand. This being said, we delivered a higher result, which includes costs for efficiency improvements, management structure changes and bonus payments. As during previous years we continued our efforts to improve our balance sheet. Strict working capital management improved our free cash flow and net debt position, delivering the financing to fund our growth strategy. A strategy driving organic growth within Purac and both organic and acquisition growth in Bakery Supplies. The recently announced acquisition of the US company Best Brands and the investment in a new lactide plant in Thailand are important milestones in driving this growth strategy. Our 2009 results in combination with the strategic steps taken, clearly reflect our ability to execute our strategy despite the challenging economic environment. We will continue to build on our strengths and remain focused going forward».

Financial commentary Q4/2009

• Lower volumes sold and adverse exchange rates, mainly US-Dollar, were main contributors to lower sales in the fourth quarter to 637,6 million EUR compared with 712,6 million EUR in 2008.
• Recovery of margins continued as a result of current raw material contracts, cost savings as well as continuing operational improvements.
• Cost levels were higher than Q4/2008 as a result of bonus costs, costs taken for among others efficiency improvements, changes in the management structure and CSM branding activities.
• Cost savings continued and ended at 26,4 million EUR of which 6,8 million EUR in Q4/2009.
• Ebita in the fourth quarter amounted to 42,3 million EUR, up 4,8 million EUR compared with the same period in 2008 (before exceptional items). At constant currency rates Ebita would have increased to 44,3 million EUR. The improved sales performance of Purac contributed strongly to the increased Ebita.

In the fourth quarter net sales decreased by 75,0 million EUR (minus 10,5 percent) to 637,6 million EUR. Net sales were negatively impacted by exchange rate effects of 39,6 million EUR, mainly due to a weaker US-Dollar. Acquisitions had a minor positive net effect of 0,2 million EUR. Organic sales growth was negative 35,5 million EUR (5,0 percent). The lower organic growth is attributable to a decline in volumes sold in the bakery supplies divisions. Although sales volume in Bakery Supplies showed a normal seasonal pattern in Q4/2009, it was 6,2 percent lower compared to the more exceptional Q4/2008. The higher sales volumes in Q4/2008 led to the build up of stock which negatively impacted sales in Q1/2009. In the first month of Q1/2010 CSM sees sales volumes following a normal pattern. Purac had a strong quarter with a volume increase of twelve percent resulting from improved industry demand.

Ebita in the fourth quarter amounted to 42,3 million EUR compared to 37,5 million EUR in 2008 (before exceptional items), an increase of almost 13 percent. Ebita of BSNA decreased by 2,9 million EUR to 21,1 million EUR, of which 2,0 million EUR due to the weaker US-Dollar. BSNA experienced in the fourth quarter lower volumes and higher general costs. In BSEU, the lower sales volumes were the main reason for the lower Ebita. Purac benefited from the higher volumes sold combined with higher margins.

Financial commentary Full year 2009

Net sales in 2009 were slightly lower than in 2008, down 1,7 percent to 2’555,9 million EUR (2008: 2’599,3 million EUR). Exchange rate differences, particularly the US-Dollar, positively impacted the sales figures by 39,3 million EUR. The net effect of acquisitions and divestments was three million EUR positive, mainly due to the full year effect of the 2008 acquisition of Harden Fine Foods in the UK. Adjusted for currency effects and acquisitions/divestments, organic growth was minus 3,3 percent.

Bakery Supplies North America (BSNA): minus 4,0 percent
Bakery Supplies Europe (BSEU): minus 5,4 percent
Purac: plus 6,2 percent

The negative organic growth at BSNA and BSEU was caused by a decrease of approximately 3,1 percent in volumes sold due to the economic climate. The remainder of the negative organic growth is due to product mix changes and price decreases. The price decreases reflect the decrease in raw material costs.

Growth at Purac was attributable to price increases and product mix changes: volumes declined by 4,7 percent. The volume decline at Purac was due to CSM´s inability to serve customers with potassium lactates in the fourth quarter of 2008 as a result of a strike in potassium mines. Excluding this effect, volumes sold at Purac were stable over the year, following a strong recovery in the second half of 2009. The price increases at Purac reflect the strong increase in the cost of raw materials in the second half of 2008.

Ebita before exceptional items increased by 17,5 million EUR or 13,1 percent, to 150,6 million EUR. At constant exchange rates Ebita would have amounted to 154,8 million EUR.

Ebita of BSNA increased by 22,9 million EUR to 94,0 million EUR, of which 5,8 million EUR due to the stronger US-Dollar. The strong performance is driven mainly by a general recovery of margins largely due to average raw material costs and efficiency improvements at H.C. Brill, in particular. After the successful reorganization H.C. Brill is back in shape.

In BSEU, after a disappointing first quarter, CSM was able to achieve a result much closer to last year´s performance. Ebita was 45,3 million EUR versus 56,6 million EUR compared to 2008 with 6,5 million EUR of the total decline in Ebita was booked in the first quarter.

Purac has shown a very good recovery in profit in 2009, especially in the fourth quarter. The improvements are the result of better margins following higher sales prices and substantial cost savings.

Financial Income and Charges, and Taxes: Net financial charges increased by 0,8 million EUR to 28,9 million EUR. The impact of currency exchange rate fluctuations increased interest expenses by 4,1 million EUR. Interest expense due to fair value adjustments of financial instruments was two million EUR positive. CSM´s strong focus on working capital reduction and lower capital expenditures below depreciation levels has brought down its debt level substantially, which in turn has contributed to lower interest costs in the second half year.

Net tax expenses amounted to 27,1 million EUR or 24 percent of income before tax, an increase of 38,7 million EUR compared with last year. This increase is fully attributable to the release in 2008 of 40,3 million EUR in tax provisions, of which 38,7 million EUR for a foreign tax claim that could be released after a successful appeal.

Balance Sheet: Capital employed including goodwill decreased by 131,4 million EUR to 1’729,9 million EUR. The main movements were:
Net capital expenditure on fixed assets 46,9 million EUR
Depreciation of fixed assets minus 68,7 million EUR
Working capital minus 103,5 million EUR
Tax receivable minus 10,0 million EUR
Exchange rate differences 2,0 million EUR

Besides regular replacement and maintenance of fixed assets comprising of frozen and ingredients manufacturing capacity, the major capital expenditures at Bakery Supplies were investments in production efficiencies and IT. Major capital expenditures at Purac include the investment to develop a gypsum free lactic acid process, expansion of warehouse capacity and preparations for the new lactide factory in Thailand.

Working capital decreased by 103,5 million EUR to 191,3 million EUR. With a reduction of 60,6 million EUR our lower inventory position was been the major contributor to the decreased working capital level. Inventory was lower both in quantity and in average value. Receivables decreased by 35,4 million EUR and CSM´s accounts payables increased by 7,5 million EUR. Equity before profit appropriation increased by 56,2 million EUR to 997,8 million EUR. The main movements were:

• The addition of 86,8 million EUR profit of 2009;
• A decrease of 31,5 million EUR in connection with the dividend for financial year 2008;
• Negative exchange rate differences of 5,5 million EUR due to the translation of equity denominated in currencies other than the Euro;
• Positive movements of 5,4 million EUR in the hedge reserve.

At the end of 2009 the ratio between balance sheet total and equity was 1:0,5 (2008: 1:0,4).

Cash Flow: Largely as a consequence of CSM´s increased profit and lower working capital, cash flow from operating activities increased by 178,7 million EUR compared to 2008 to a total of 277,2 million EUR. Capital expenditure on fixed assets amounted to 47,1 million EUR, 21,6 million EUR below the 2009 depreciation level of 68,7 million EUR. Cash flow from financing activities includes the cash element of the dividend payment of 31,5 million EUR.

Outlook 2010

CSM does not expect the economic climate to change significantly in 2010. The Bakery Supplies business will continue to lead the market forward, both in terms of innovative products and services by anticipating consumer and industry trends. CSM clearly sees a trend of consolidation, in which the company will continue to play its part as market leader.

The Purac business will take advantage of the global trend towards sustainable green products by advancing the company´s portfolio of applications and technologies and leveraging its partnerships in both preservation and bio-plastics. CSM will continue to promote its major bio-plastics opportunity and bolster its position as the leading player in this market.

In the main markets where CSM operates employment levels are unstable and customer confidence is still very fragile. Looking forward and estimating the impact of the recovery on CSM´s volumes is therefore very difficult. For this reason CSM will not give an outlook for the full year 2010 at this stage. For the first quarter of 2010, taking into account acquisition costs (approximately six million USD) for the Best Brands transaction, CSM sees a substantial improvement in Ebita compared with the first quarter of 2009 It should be noted that the company had a slow start in 2009, leading to a disappointing Ebita in the first quarter of last year.

CSM expects normal capital expenditure to be below depreciation, with the exception of the large investment in lactide capacity for Purac. Working capital as a percentage of sales is expected to reduce slightly (source).