Cham Paper widens H1 net income to 1.6M Swiss francs from 200,000 francs in year-ago period; net revenue down 23% year-over-year, to 119.3M francs, due to 25% drop in specialty paper sales from machines being shut down in Cham in June 2012 and March 2013
August 23, 2013
In putting its comprehensive restructuring plan into effect the Cham Paper Group reached further key milestones during the first half of 2013. The transfer of key product segments from Cham to Carmignano - prepared in 2012 and executed during the second quarter of 2013 - has succeeded and the associated processes have been established. The second paper machine in Cham was shut down at the end of March as scheduled. The 'Cham specialities' - in particular for Digital Imaging customers - are now being produced using sourced base papers on both coating machines in the same excellent quality our customers have grown to expect. The Cham coating unit - focussing fully on surface coatings and finishings - is set to become established as a niche player offering a high share of services in attractive growth markets. Shortly after the close of the reporting period, a sales agreement was signed for the Italian mills - well positioned after the product transfer - to the Delfort Group, whose product range dovetails with the Cham Paper Group's own.
In terms of figures, performance in the first half of 2013 was as projected. Net revenue fell by 23% to CHF 119.3 million (prior-year period: CHF 155.0 million) on account of the paper machines shut down in Cham at the end of June 2012 and the end of March 2013; at 77,750 tons (104,186 tons), the volume of speciality papers sold fell by 25%. However, sales continued to rise in strategic key product segments. Despite the demands placed on the Group by the transfer and the associated costs and expenses incurred, an operating profit of CHF 2.0 million (prior-year period: CHF 2.7 million) resulted, corresponding to an EBIT margin of 1.7% (1.8%). The net profit for the first half of 2013 amounted to CHF 1.6 million (CHF 0.2 million). The free cash flow achieved during the first half amounted to a welcome CHF 8.4 million (previous year: CHF 4.4 million), the Group's net debt dropping to CHF 13.2 million despite the dividend of approx. CHF 2 million disbursed to shareholders in May of 2013.
Carmignano benefits from adaptation of product range, Condino continues to grow
The two mills in Carmignano and Condino have trended favourably in 2013. Sales topped the prior-year figure by well over 3%, although comprehensive testing with the innerliner papers in Carmignano tied up considerable in the way of funds and capacity. The successfully completed relocation enabled the mill to sustainably optimise its product mix over the following months, which also included introducing price increases. In Condino the demand for glassine papers, the mill's main product, continued to rise at an already favourable level. The margin improvements achieved also had a positive impact on operating profit.
Continued growth dynamic in Transjet papers from Cham In Digital Imaging, the positive trend in the Transjet product line continues. The first half of 2013 again saw double-digit growth. The geographical expansion of markets to North Africa and South America is progressing well. In Inkjet Papers, the focus is on developing new products. Now that testing has been successfully concluded the market launch of a product for high-speed inkjet printing is right around the corner in the second half of 2013.
The Barnamic family has undergone further development, however no sales were recorded for it during the first half of 2013. In addition to the existing individual water vapour and oxygen barriers Cham has successfully engineered a product that combines both. In addition, testing with the newly developed barriers against mineral oil components has been showing excellent results. On the whole, over thirty projects involving Barnamic applications are currently in progress.
Restructuring frees up further funds and strengthens balance sheet Restructuring enabled additional funds to be released during the first half of 2013. A free cash flow of CHF 8.4 million was achieved thanks in particular to a further reduction in net working capital by 13.7% and stringent cost control. Net debt was successfully reduced by another CHF 4.8 million despite a dividend payment of CHF 2.1 million. The equity ratio is at a comfortable 41.2%.
Sale of Italian mills to the Delfort Group
During the past couple of months the Board of Directors of the Cham Paper Group has examined strategic options that may restore a sustainable growth dynamic to the speciality paper business after the comprehensive restructuring over the past eighteen months. Integration of the two complementary Italian mills in the Delfort Group was evaluated as a promising alternative in this regard. Domiciled in Traun, Austria, the Delfort Group develops, produces and markets with its 1,750-strong workforce speciality papers in five mills located in Austria, Hungary, the Czech Republic and Finland. Like the Cham Paper Group, this family-owned and operated company has an acknowledged market position in various areas of the speciality papers market.
The acquisition is subject to approval by the competent anti-trust authorities. The transaction is expected to go through in the fourth quarter of 2013. The enterprise value amounts to approx. EUR 86 million. This figure includes bank debts of approx. EUR 45 million, which will be assumed by the purchaser. The net purchase price will be paid in cash. The parties are maintaining confidentiality on the details of the sales agreement. The activities of the Cham Paper Group in Switzerland will not be significantly impacted by the sale of the Italian mills.
Outlook: concentration fully focussed on Swiss activities The small but innovative Cham Paper Group Schweiz AG (Solutions) will have to prove itself in the marketplace over the coming twelve to eighteen months. The market trends in the Digital Imaging segment are positive. The Transjet segment is set to undergo significant growth. The newly developed products for the high-speed inkjet printing presses will be market-ready in the second half of the year and will then encounter a rapidly growing market. Interest in the Barnamic technology is pronounced; however, implementing a fully new concept in flexible packaging - as is the Barnamic - takes time and the market must adjust to this new idea. Recently the Cham mill has been offering contract coatings and finishings catering for exacting customer requirements. Now sales volumes have to be successfully increased and sustainable profitability enabled from 2015 on. Until then production will take place on the Group's existing grounds, after which production facilities will have to be relocated.
Papieri Park: vision has been formulated and urban planning study commissioned
The Cham Paper Group and the municipality of Cham are currently working in concert on transforming the use of the factory grounds to be vacated. In the cooperative planning process, they are consulting the key stakeholders and the local populace of Cham. The first half of 2013 saw the formulation of the vision and the guiding principles of the new town district derived from it. They were wholly confirmed by virtue of participation on the part of the populace. During the second half of 2013 four qualifying architectural firms will be tasked with an urban planning study. The findings of this study will form the basis for the subsequent procurement of planning funds. This will be followed by a popular referendum of Cham's electorate anticipated for the end of 2014/beginning of 2015 on the implementation of rezoning required to this end.
The costs of the development and planning process of the Papieri Park are covered for the most part until 2015 by revenue from interim leasing contracts and the operations of Cham Paper Group Schweiz AG (Solutions). During the past twelve months a large number of new tenants have moved onto the Cham grounds; the demand for office, storage and parking space is high.
Break-even operating result expected
The Board of Directors reckons with a break-even operating result for FY 2013. The effect that the sale of the Italian mills will have on the consolidated financial statements cannot as yet be determined with any precision.
Please note: on 23 August 2013, at 9:00 CEST, there will an analyst conference call (conference ID: 4635391) with Delegate of the Board of Directors Urs Ziegler and Finance & Controlling Head Luis Mata to discuss the half-year results. To take part, call: +41 22 592 73 12.
The complete half-year report (in German) is available on our website in the Investor Relations section (see “Financial Reports”) or directly under the following link: http://ir.champaper.ch/cgi-bin/show.ssp?id=311&companyName=champaper&language=English.
The Cham Paper Group will be giving a company presentation on 11 September 2013 from 9:55 - 10:40 am at Investora, the small and mid cap conference, at the Zurich Marriot Hotel. For further details, please consult: www.investora.ch.
Cham Paper Group
Cham Paper Group is a leading manufacturer of coated speciality papers. The group generates value added for its customers by providing finishing-based functional capabilities. Founded in 1657, at its three locations in Switzerland and Italy the company develops and manufactures speciality papers for use in the consumer goods, industrial release and digital imaging sectors. The consumer goods sector encompasses papers for flexible packaging and base papers for label printing in the food, non-food, tobacco, beverage and pharmaceutical industries. In terms of the industrial release sector, 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. In addition to large-format inkjet papers for indoor and outdoor applications, the digital imaging sector also includes sublimation papers for digital textile printing. Cham Paper Group has benefited from the trend for sustainable products and is well established on the market thanks to the company's technological innovation. Cham Paper Group (stock exchange symbol: CPGN) is listed on the SIX Swiss Exchange as an independent company.