Cham Paper reports full-year 2012 net loss of 1.2M Swiss francs, with net turnover down 9.6% year-over-year to 279.9M francs due to reduced production capacity; company notes gains in all core products were offset by higher costs
March 20, 2013
– - Demanding first year of transformation
- Net revenue increase in all strategic product segments - Margin performance negatively impacted by high raw materials and energy prices
- Solid balance sheet and free cash flow of CHF 8.1 million enable reduction in financial debt and distribution of CHF 3.00 dividend - Project 'Rezoning of Cham Company Site' progressing on schedule
For Cham Paper Group, the 2012 financial year was characterised mainly by the significant challenges that had to be overcome during the first of two transition years, in order to be able to implement the Group's transformation process, which was introduced at the end of 2011. In addition to the formidable internal processes, it was vital to focus simultaneously on market cultivation and innovation management. Despite a difficult economic environment the Group succeeded in remaining on course.
In 2012, as a result of its reduction of capacity, the Cham Paper Group's net turnover fell by 9.6% to CHF 279.9 million, however it made encouraging gains in all core product groups. Due to the sharp rise in energy costs and considerably higher purchasing prices for chemicals, which could not be passed on directly to customers in the form of price increases, the gross margin fell from 33.9% to 33.3%. The operating result (EBIT) amounted to CHF 3.2 million, the net result to CHF -1.2 million. Thanks to the free cash flow of CHF 8.1 million achieved, the Group's cash reserves remained unchanged at 49.0 million despite a reduction of bank loans by CHF 8.0 million and the balance sheet remained stable.
The 2012 financial year was extremely challenging for the Management and employees of the Cham Paper Group. The company, which is undergoing a transformation process, had to simultaneously overcome many challenges, particularly at the site in Cham: the planning and introduction of socially acceptable staff cuts, the orderly withdrawal from the CCK markets of the Industrial Release segment, the preparation of the transfer of entire product groups (Innerliner in particular) to Carmignano, the evaluation of raw paper suppliers for products, which should still be coated in Cham, and the stepping up of development and marketing activities.
Industrial Release: Growth in glassines and orderly withdrawal from CCK With an increase in turnover of 12.5%, the demand for glassine products made good progress and accounted for another peak in the sales quantity of Condino mill. In the case of silicone-based papers for Release Liners from Cham, where the Group is withdrawing from the production and sale of the CCK division (Clay Coated Kraft) for reasons of cost-effectiveness, the turnover in 2012 fell by 11% compared to the previous year, as expected. For those customers who had not yet found new suppliers by July 2012, supplies were produced, in order to be able to guarantee the contractually agreed deliveries until 2013. In February 2013, a cooperation agreement was concluded with the Austrian speciality paper manufacturer Brigl & Bergmeister. This company will take over the technological knowledge and experience for part of this product group and will supply customers from the second half of the year.
Consumer Goods: Continuing positive development of demand The Consumer Goods product sector continued to make good progress, despite the increasing pricing pressure, and provided a less cyclical, more solid base within the Group. Our packaging solutions and tobacco papers meet high standards and continue to set the benchmark for the industry. Sales were particularly encouraging in the food packaging sector, where they increased by 10%.
Despite the increase in sales of core products, the margins were unsatisfactory in these two areas of business. It was not possible in 2012 to offset the rise in energy costs (gas), which have risen in Italy by up to 50%, and the increase in chemical prices, which have gone up by around 10%, through higher sale prices.
Digital Imaging consolidates services
The Cham-based business area of Digital Imaging which is still small but is showing strong margins continued to be successful, especially in the case of Transjet papers for textile sublimation printing. Sales in this product segment increased once again by over 20%. In the textile industry, digital printing technology is increasingly also being used in large volumes (cf. page xx). In this customer sector, the demand for consulting services is also growing. For this purpose, the Group operates a Department for Application Technology in Cham, which was systematically enlarged during the first six months of the year.
BARnamic on the cusp of market introduction
The smooth introduction of BARnamic is of crucial importance in order to confirm the success of the development activities of the Cham Paper Group. Thanks to these innovative barrier papers, which are produced in Switzerland, the Cham Paper Group should be in possession of a unique selling point in the future. During the second half of the year, the Group won an innovation prize awarded by the Swiss Canton of Zug for BARnamic. At the same time, however, the company had to deal with a few setbacks during test runs with selected key costumers, which led to delays. In the first quarter of 2013, the first sales were achieved. Naturally, it will take a few years before this innovative product solution will be demanded in large volumes. The Development Team is currently working under considerable pressure to develop the BARnamic product family further.
Solid balance sheet and a lower net working capital The net working capital has fallen during the reporting year by CHF 6 million to CHF 68 million. At the same time, the Group generated a positive free cash flow of CHF 8.1 million (previous year: CHF -4.2 million). Fixed offtake contracts are in place with the relevant customers for the (increased) warehouses in the Industrial Release area. With the closure of the second paper machine in Cham and the outflow of goods from the warehouses, the net working capital will continue to decrease in 2013. The net debt fell further during the reporting period, to CHF 18.0 million (previous year: CHF 25.9 million). Furthermore, better terms and conditions were achieved for some of the credit agreements. By the end of the year, the Group had a cash position of CHF 49.0 million. The equity ratio as at 31 December 2012 was a healthy 41% (previous year: 39.3%).
Orderly staff cuts
In February, representatives for Management and Labour in Cham adopted a comprehensive redundancy package, which defines the framework conditions for socially acceptable staff cuts of 212 jobs in total by 2014. The support measures offered, such as the job centre set up by the company and various training opportunities, were appreciated and put to good use. By the end of the year, the Group's staff was downsized to 544.5 employees (previous year: 651 employees). Happily, many of the employees affected by redundancy have already been able to find new jobs. The next milestone is approaching in the second quarter of 2013. From April, the speciality papers for the tobacco industry hitherto produced in Cham will be manufactured in Carmignano. From that point onwards, the speciality papers remaining in Cham (BARnamic and papers for the Digital Imaging sector) will be manufactured on the coating machines in situ using raw paper produced elsewhere, e.g. in our Italian factories. The closure of the second paper machine at the Swiss parent plant will take place at the end of March 2013 and trigger the second phase of downsizing.
Adjustments to the management structure
At the end of 2012, the Board of Directors agreed a new management structure for the Group. As a result of this, the speciality paper areas in Switzerland and in Italy, which will operate independently on the market until 2013, and the real estate activities in Cham were separated from one another in terms of management. At the same time, the function of the Group's CEO was abolished. Since December 2012, an Executive Committee under the direction of Urs Ziegler (Delegate of the Board) has taken over coordination between the two speciality paper areas in Switzerland and Italy. Urs Ziegler joined the Board of Directors of the Cham Paper Group in 2007 and was himself active until 2009 as a paper industrialist (CEO of Ziegler Papier). The other members of the Executive Committee are Peter Müller, Managing Director of CPG Schweiz AG, Marcello Di Giacomo, Managing Director of CPG Italia S.p.A. and Gerold Zuegg, Plant Manager in Condino. In carrying out his holding duties, Urs Ziegler is assisted by Franziska Stöckli, Head of Corporate Services, and Luis Mata, Head of Finance & Controlling.
The preparations for the conversion of the 'Papieri-Areal' area into a new neighbourhood of Cham are being carried out in parallel to this. This process, which is being carried out in conjunction with the Commune of Cham, is being managed by Claude Ebnöther on behalf of the Cham Paper Group, who reports directly to the Real Estate project group of the Board of Directors.
Important intermediate stage in the rezoning of the company's site in Cham The Communal Council of Cham unanimously decided on 12 June 2012 that it would accept the Cham Paper Group's rezoning request and create a new residential and working neighbourhood on the 'Papieri' site. Alongside comprehensive preparation of the fundamental principles, a vision with objectives should be drawn up and adopted. The Commune of Cham and the Cham Paper Group will subsequently organise a joint competition in the context of a town planning study contract which will be concluded in autumn 2013. On 10 December 2012, a suitable planning loan was approved for this by the Communal Assembly in Cham. After this, the required planning resources will be provided and submitted to the people of Cham in a secret ballot.
Motions put to the General Meeting of Shareholders In general, the Cham Paper Group follows a dividend strategy that provides for distribution of up to 35% of the net operating profit. Due to the concentration of raw paper production in Italy, however, financial resources are being freed up. On the one hand, the Board of Directors wishes to use these funds to reduce bank debts, whilst on the other hand, it wishes to distribute them to the shareholders. The Board of Directors therefore proposes that the General Meeting of Shareholders approve a special distribution in the form of a tax-favourable capital repayment of CHF 3.00 per share.
Due to the one-year term of office, the whole Board of Directors is up for re-election. Hans Schaller, who wishes to step down on grounds of age, is no longer available. The Board of Directors would like to thank him for the valuable service he has provided through his intensive work for the Cham Paper Group since 2009, and wishes him all the best. The vacancy will not be filled, meaning that the Board of Directors will be reduced to five members.
Cham Paper Group's conversion process remains a challenging one and will take a little while longer. From the current perspective, we are well on schedule to being able to complete the restructuring of our paper activities by the end of 2013. We are relying on a continuation of the positive development in demand for our core products and are sparing no effort in order to preserve profitability during this transitional stage.
A media and analyst conference will take place in the SIX Convention Point in Zurich today, 20 March 2013, at 9:30.
The complete annual report (in German) is available on our website in the Investor Relations section (see 'Financial Reports') or directly under the following link:
Cham Paper Group
The Cham Paper Group is a leading manufacturer of coated specialty papers. It generates added value for its customers by providing finishing-based functional capabilities. Founded in 1657, the company develops and manufactures specialty papers at its three locations in Switzerland and Italy for use in Consumer Goods, Industrial Release and Digital Imaging applications. Consumer Goods encompasses papers for flexible packaging and base papers for label printing in the food, non-food, tobacco, beverage and pharmaceutical industries. In the Industrial Release segment, the Cham Paper Group supplies silicone-base papers for release liners used in graphical applications and for adhesive tapes and labels. The company also supplies base papers for process liners used in industrial casting and laminating process applications. Facestock papers for the self-adhesive industry round off the range. Apart from large-format inkjet papers for indoor and outdoor applications, the Digital Imaging segment also includes sublimation papers for digital textile printing. The Cham Paper Group has benefited from the trend for sustainable products and is well established in the market thanks to its technological innovative prowess. It is listed as an independent company on the SIX Swiss Exchange (ticker symbol: CPGN).