Flexibles and emerging market growth prop up Huhtamaki

By Rory Harrington

- Last updated on GMT

Related tags: Raw material, Raw material costs, High raw material, Cost, Generally accepted accounting principles

Huhtamaki suffered mixed fortunes in the first half of 2011 as strong performance in its flexible ops and emerging markets were countered by high raw material costs, negative currency effects and operational problems on some lines.

The Finland-based company said its trading conditions were “stable”​ in the six months ending 30 June as consumer demand for packaged goods held up.

The firm highlighted a five per cent rise in net sales driven by a 14 per cent growth in emerging markets and by robust demand for its flexible packaging products.

But it said that H1 EBIT (operating profit) fell by almost six per cent year-on-year from EUR 73.2m in 2010 to EUR 67.4m. EBIT in the second quarter fell by 10 per cent compared to the previous year – dropping from EUR 44m in 2010 to EUR 40m at the end of June this year.

Huhtamaki outlined a number of reasons behind the fall in revenues.

“Cost pressure from high raw material costs continued during the first half of the year,”​ it declared in a statement. “Net sales growth and continued cost containment were not sufficient to entirely offset the high costs caused by raw material prices and certain short term operational issues in the second quarter. Currency translations also had a negative impact on earnings during the second quarter.”

While free cash flow was negative for the six-month period at EUR-19m, the company announced it had turned positive during Q2.

Flexible packaging

Flexible packaging sales accounted for 29 per cent of the company total in H1 – up two per cent on the previous year.

Sales in the segment rose almost 13 per cent to EUR 290m, while operating profit soared 17 per cent to EUR 20m.

Net sales growth in Europe accelerated in the second quarter. Cost management and demand growth “more than offset the high raw material costs”,​ said the company.

Films

The same could not be said however for its films unit – which were hamstrung by operation problems leading to excessive downtime and lost production.

While sales rose by EUR 2m to EUR 86m, EBIT (operating profit) actually fell by around 16 per cent to EUR 5m

“The segment’s negative earnings development during the reporting period was due to second quarter unfavourable product mix and a short term equipment issue that led to quality problems,”​ said Huhtamaki.

Moulded Fibre

It was a similar picture in the moulded fibre division where increased sales (EUR 118m in 2011 compared to EUR 114m in 2010) failed to translate into higher EBIT (EUR 10m compared to EUR 10.3m in the previous year.

Unfavourable product mix and “certain short term equipment issues” ​were once again blamed.

Outlook

The firm said the second of the year was likely to see a similar picture emerging – although it predicted that raw material prices have peaked.

“Financial charges and tax expenses are expected to increase from the exceptionally low level in 2010,”​ cautioned the company.

Capital expenditure is expected to be around EUR 100m.

Related topics: Processing & Packaging

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