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SIG Annual Report 2005 SIG Annual Report 2005 Strong growth in strategic future markets Raw materials costs and business in Germany impact results Highest net profit since 2000; free cash flow rose significantly SIG Group: - Net sales of core business (continuing) increased by 2 percent to EUR 1 207 million - EBIT of core business at EUR 67 million markedly improved over previous year - Corporate costs almost halved - Profit increased to EUR 47 million (2004: EUR –166 million) - Free cash flow at EUR 60 million significantly higher than previous year (2004: EUR 23 million) - Net financing debt cut further to EUR 64 million (2004: EUR 180 million) - Increased dividend payout for 2005 in the form of a nominal value repayment of CHF 4.- (in line with the intended future dividend payout ratio of 30-40 percent) - Divestment of the Italian units concluded as planned SIG Combibloc: - Continued strong growth in sales in burgeoning markets outside Europe - Massive price increases for raw materials and hesitant business environment in Germany impacted results; successfully implemented cost savings initiatives only partially able to offset these negative effects SIG Beverages: - Strongly expanding order intake at SIG Asbofill since successful trade fair in fall 2005; value added bottling strategy beginning to pay off - EBIT margin of traditional business activities (SIG Corpoplast and SIG Cantec) rose from 5 to 6 percent General Meeting March 30, 2006: - Heinrich Fischer, Götz-Michael Müller and Dr. Rudolf Wehrli proposed for election to Board of Directors Net sales of SIG’s core business (continuing) grew by 2 percent to EUR 1 207 million (2004: EUR 1 184 million). This growth was primarily attributed to the pronounced and dynamic development of the SIG Combibloc Division in the strategic future markets, which more than compensated the division’s declining business in Germany and the slight fall-off in sales of the SIG Beverages Division. Towards the end of 2005 and at the beginning of this year, it became evident though that the «Value Added Bottling» strategy of SIG Beverages is beginning to pay off. With the divestment of the Italian units Simonazzi, Comaco/Manzini and Alfa in the course of the past year, the focus on the cartons business and the value added bottling activities was successfully completed. Operating profit (EBIT) 2005 was impacted by a drop in earnings by the SIG Combibloc Division, which suffered from massive increases in the price of raw materials and price pressures within the German market. Increased costs for raw materials of some EUR 25 million alone cut the EBIT margin of this division by 2 percent. Notwithstanding, at EUR 67 million, the EBIT of the core activities was significantly higher that the previous year’s result of EUR -14 million, which was heavily impacted by goodwill impairment. Noteworthy contributions to this improved result were the reduced Corporate/Services costs that were cut by almost half to EUR 15 million. Moreover, the Group benefited from the restructuring initiatives and cost cutting measures initiated in the previous year, which resulted in savings of EUR 21 million. Development of free cash flow was highly gratifying and reached EUR 60 million (2004: EUR 23 million). Both divisions contributed significantly to this result through substantially reduced net working capital. Despite an unfavorable economic environment, SIG achieved, with EUR 47 million (after restructuring costs), its highest net profit since 2000. This increase in profitability stemmed, in addition to the operational improvements, from an enhanced financial result, lower taxes and earnings from the divestment of the Italian units. Those operational improvements and the sharply defined strategic orientation towards the rapidly growing future markets will generate new growth and earnings impetus for SIG in the current year already. Given the improvement in profitability and the significantly higher free cash flow, the Board of Directors is proposing at the General Meeting scheduled for March 30, 2006 to substantially raise the dividend payout in the form of a nominal value reduction of CHF 4.- per share (from CHF 10.- to CHF 6.-). This represents a payout rate of 36.4 percent, which is within the 30 to 40 percent bandwidth planned for the future. Moreover, in January, SIG initiated a share buyback program valued at up to CHF 100 million. That initiative is expected to be completed by the General Meeting 2007. As announced earlier, the SIG Board of Directors will propose to the General Meeting of March 30, 2006 the election of three highly qualified and experienced personalities to the Board: Heinrich Fischer, CEO of Saurer AG, Götz-Michael Müller, Managing Director of Coca-Cola Germany up to the end of 2005 and Dr. Rudolf Wehrli, CEO of Gurit-Heberlein. SIG Combibloc – worldwide number 2 in the global growth market for carton packages Whereas the German market registered a fall in sales, the growth markets of China, Southeast Asia, Eastern Europe and the Middle East/Africa continued to expand in a highly satisfactory manner. Net sales in China, for example, nearly doubled, while in the Middle East/Africa, they grew by some 30 percent. SIG Combibloc responded to the positive development trends in this region by opening a new packaging materials production plant in Riyadh, Saudi Arabia in November 2005. Overall, the division succeeded in increasing its net sales by 2 percent to EUR 1 097 million (2004: EUR 1 075 million). Through further investments in the booming growth markets outside of Europe, the division will markedly reduce its dependency on Germany over the coming two years. The 11 percent decline in net sales in Germany was attributable to continuing weak demand – instead of high quality juices, consumption of sparkling drinks, mineral water and flavored waters is on the increase – as well as to the substitution by the monolayer PET bottle (without barrier properties) caused by price pressures within Germany’s beverages retail trade. As the German juice segment has a disproportionate significance for SIG Combibloc, the division was particularly hard hit in 2005 by this special situation that is peculiar to Germany. In all other important markets, the juice segment plays a substantially less critical role for SIG Combibloc. The as yet new business segment of carton packages for food products developed positively. Sales in the profitable sector of “aseptic cartons for soups and sauces” reached over EUR 74 million last year, thanks primarily to the strongly developing markets in the USA and France. These market successes verify the viability of the strategy, decided last November, of building up the segment of cartons for food packaging into the second, strong pillar of the SIG Combibloc division. Despite substantial operational improvements, the EBIT of the division fell back to EUR 95 million (after restructuring: EUR 86 million; 2004 after restructuring: EUR 111 Mio.), as a result of the significant increases in raw materials cost and price pressures in Germany’s retail trade. The higher prices paid for polyethylene (PE) alone reduced the EBIT margin by 2 percent. Without that impact, the EBIT margin 2005 would have exceeded the 10 percent threshold of the past five years. Notwithstanding the EUR 133 million invested in packaging materials production, investment outlay was slightly lower than that of the year before (2004: EUR 138 million). In order to manage SIG Combibloc better and more efficiently as a globally operating division in the future, and thereby progressing the standardization of processes, the hitherto regional structure was migrated to a functional organization. Since January 2006, this concept has been implemented throughout the division. As a result, the four functions Market Operations (marketing, sales, services), Sleeves Operations (sleeve production and closures), Equipment Unit (filling machines) and R&D (research and development) are being centrally steered as global units. SIG Beverages – value added bottling strategy begins to pay off Even though business picked up in the second half of the year and was particularly satisfactory in the months of November and December, the SIG Beverages Division was not able to completely make good the shortfall in sales of the first half. Net sales fell by 6 percent in 2005 to reach EUR 125 million (2004: EUR 133 million). Thanks to further increases in efficiencies, however, the EBIT margin of the traditional activities rose from 5 to 6 percent over the past year. Despite substantial investments in the future technologies SIG Asbofill and SIG Plasmax, this allowed the division to achieve a balanced result. The investments in SIG Asbofill and SIG Plasmax, as well as the focus on the value added bottling strategy (high-integrity solutions for the PET bottle market) began to bear first fruits. Following the Munich drinktec trade show in fall 2005, order intake at SIG Asbofill took a leap. In the month of November alone, five aseptic fillers were sold. This robust demand continued into the current business year, whereby SIG Asbofill and SIG Corpoplast systems are increasingly being sold as integrated end-to-end solutions. At SIG Plasmax, the emphasis in 2005 was on optimizing the technology. For example, for almost a full year with a customer in Japan, PET bottles were coated in three-shift production. Interest from the juice and beer filling industries in this innovative coating technology is high. In the current year, the industrialization and hence, widespread market penetration by the Plasmax technology is an objective. Outlook 2006 – strategic future markets are supporting growth SIG Combibloc: As already announced by SIG last November, monolayer PET bottles are expected to partially substitute beverage cartons in the segments of fruit juice based drinks and teas in Germany in the course of this year and the next. In that period, the hitherto very high share of around 60 percent held by the beverage carton in the German market for non-carbonated refreshments is likely to align itself with the 40 to 50 percent European average. By contrast, the competitive advantages offered by the new combiSwift closure will encourage growth in the milk segment. As a result of these changes in the juice segment, SIG began planning adjustments to production capacities in Europe at the end of the year under report already. Liberated infrastructures are to be relocated to the dynamic growth markets in order to generate potential cost benefits. Part of these restructuring costs impacted the results of 2005; the remaining portion will be assigned to the year 2006. These capacity adjustments will have a positive effect on cash flow by 2006 already and, from 2007 onwards, lead to cost savings in the double-digit million range annually. Despite the reported weakness in net sales in Germany, the SIG Combibloc Division is reckoning with growth in net sales of 3 to 5 percent for 2006. This is primarily thanks to the still booming markets of Asia, China, Middle East/Africa and, more recently, South America, where SIG Combibloc is growing substantially faster than the market. Robust growth is also expected in the rest of Western Europe, in Eastern Europe and the USA. The food packaging segment will be further expanded to become the second pillar of the division. The biggest contributor to net sales in 2006 will be the already established applications segment for soups and sauces. In the course of this year, pilot projects will prepare the ground for the industrialization of the filling machines to be used in the new applications segment announced last November – cartons for packaging fruit and vegetables. Given the investments in this new technology, the specific situation in Germany and the unrelentingly high costs for raw materials, the EBIT margin 2006 of the division is likely to be around 8 percent (prior to restructuring), i.e. somewhat below that of 2005. A key objective of R&D in the years to come will be to further reduce the PE content in carton packages as far as possible. SIG Beverages: Sales growth in the SIG Beverages Division is expected to be a solid 3 to 5 percent. As in 2005, the strongest growth is expected to come from the regions of North America, Asia and Russia. Should the positive trend discerned for the first two months of 2006 at SIG Asbofill and SIG Plasmax continue, markedly stronger growth for this division is also feasible. As in previous years, the earnings of the division will be invested fully in the building up and expansion of SIG Asbofill and SIG Plasmax activities, whereby the intention is that, in the current year, SIG Asbofill should achieve a balanced result for the first time. SIG Group: In keeping with the expected development of the divisions, growth in net sales at Group level will rise by 3 to 5 percent, while the EBIT margin, at 5 to 6 percent (prior to restructuring), will fall slightly below the previous year’s level. In the medium term, SIG and primarily the SIG Combibloc Division will benefit from the growing environmental awareness of consumers and more favorable deposit legislation in Germany. In future, the ecological compatibility of the carton, in particular its ability to be recycled and the renewability of wood, its main raw material, will increasingly influence the purchasing habits of consumers across the globe and orient them towards cartons. The share buyback program initiated in January, valued at up to CHF 100 million, will run at latest until the General Meeting of April 2007. At 35 percent, the equity ratio for 2006 is expected to remain at approximately the same level as the previous year.  Download Media Release 060306 including key figures (PDF, 148kB) News overview >> |
