SOURCE: Royal Numico NV

August 03, 2006 01:58 ET

Royal Numico: Second Quarter and First Half Year Results 2006

SCHIPHOL AIRPORT, NETHERLANDS -- (MARKET WIRE) -- August 3, 2006 --



Strong First Half Year Performance - 2006 Outlook Reconfirmed

3 August 2006

Financial Highlights First Half Year 2006 (on a comparable basis)[1]

* Total sales up 12.4%; EBITA margin at 19.2%
* Nutricia Baby sales up 10.6%; EBITA margin at 19.7%
* Dumex sales up 25.7%; EBITA margin at 18.0%
* Nutricia Clinical sales up 10.1%; EBITA margin at 26.1%
* Normalised[1] profit up 37.8% and normalised basic EPS up 20.6% (at
  reported rates)
* Cash generated from operations at EUR  228 mln


Financial Highlights Second Quarter 2006 (on a comparable basis)[1]

* Total sales up 11.3%; EBITA margin at 19.3%
* Nutricia Baby sales up 9.8%; EBITA margin at 20.1%
* Dumex sales up 23.1%; EBITA margin at 16.5%
* Nutricia Clinical sales up 9.0%; EBITA margin at 26.3%
* Normalised[2] profit up 33.2% and normalised basic EPS up 16.7% (at
  reported rates)

CEO Statement

"Numico delivered a strong performance in the first half of 2006 with organic sales growth of 12.4% and margins improving 40 bps to 19.2%. Nutricia Baby Food achieved double-digit organic growth with an improved performance in Western Europe, accompanied by important market share gains in the UK, Italy, Germany, as well as strengthening in the Netherlands. The new immunity claim has been successfully launched in 20 out of 31 countries and has gained positive reception in the medical community. The integration of Dumex is complete and Dumex continued to deliver superior performance during H1, with 26% sales growth at 18% margin. Importantly, the rebuilding of our two factories in Indonesia progressed much faster than anticipated, so H2 impact will be minimal. Nutricia Clinical also posted double-digit growth in H1, despite the impact of the changes in reimbursement in Germany. We have made significant progress with the Alzheimer's project which now enters the last phase of clinical trials. Based on our strong first half year performance, we are confident that we will be able to reach our sales growth target of 12% - 13% and an EBITA margin of 18.75%."




+-------------------------------------------------------------------------+
|Second Quarter|   % change    |(EUR  mln)|First Half Year|   % change    |
|--------------+---------------+----------+---------------+---------------|
| 2006| 2005[3]|comp.[1]|actual|          |   2006|  20053|comp.[1]|actual|
|--------------+---------------+----------+---------------+---------------|
|  644|     593|    11.3|  31.2|  Sales   |  1,277|  1,156|    12.4|  36.6|
|--------------+---------------+----------+---------------+---------------|
|  121|     104|    21.8|  30.7|  EBITA   |    239|    210|    15.2|  37.6|
|--------------+---------------+----------+---------------+---------------|
|     |        |        |      |Normalised|       |       |        |      |
|   73|      55|       -|  33.2| profit[2]|    136|     98|       -|  37.8|
|--------------+---------------+----------+---------------+---------------|
|     |        |        |      |Normalised|       |       |        |      |
| 0.38|    0.33|       -|  16.7|  EPS[2]  |   0.71|   0.59|       -|  20.6|
|--------------+---------------+----------+---------------+---------------|
|     |        |        |      |          |       |       |        |      |
|--------------+---------------+----------+---------------+---------------|
|     |        |        |      |Profit for|       |       |        |      |
|   65|      54|       -|  20.4|the period|    112|     99|       -|  14.0|
|--------------+---------------+----------+---------------+---------------|
|     |        |        |      |  Basic   |       |       |        |      |
| 0.34|    0.32|       -|   5.6|EPS (EUR) |   0.59|   0.59|       -| (0.1)|
|--------------+---------------+----------+---------------+---------------|
|     |        |        |      | Diluted  |       |       |        |      |
| 0.32|    0.31|       -|   5.4|EPS (EUR) |   0.57|   0.57|       -| (0.1)|
+-------------------------------------------------------------------------+
[1] 'Comparable basis' is at constant scope of consolidation and constant exchange rates and excluding exceptionals (appendix 5 and 10)

[2] 'Normalised' excludes discontinued businesses, acquisition and integration costs, result divestment after tax and exceptionals (appendix 6)

[3] For reconciliation of pro forma Q2 05 sales and EBITA, please refer to appendix 5 and 10


OUTLOOK 2006

Based on the strong performance in the first half of 2006 and the expected performance for the remainder of the year, Numico reconfirms its total sales growth target of 12% - 13% and an EBITA margin of 18.75%. These targets are all based on constant scope of consolidation, constant exchange rates, excluding exceptionals and barring unforeseen circumstances.



UPDATE ON ALZHEIMER'S DISEASE PROJECT

Numico is continuing its development of a proprietary nutritional product for patients with Alzheimer's disease. This is the result of 8 years of research studying nutrition in relation to brain development. The product concept is designed as Food for Special Medical Purposes (FSMP) in Europe and as Medical Food in the US. The product concept is aimed at patients with mild and moderate Alzheimer's disease. It is designed to improve synaptic and neural functions of the brain resulting in a slowdown in the progression of the disease, as determined by improved cognitive function including improved memory performance, thereby enabling patients to maintain a better control of normal daily activities.

Numico has successfully completed its pre-clinical experimental research, in collaboration with Professor Richard Wurtman from M.I.T. in the US and a number of leading scientific experts on Alzheimer's disease in Europe. The outcomes of this research, with animal models, have confirmed improved learning and memory ability and the toxicological evaluations have underpinned that the product is safe.

As a last stage before commercialisation, Numico has now started a clinical trial to test the product in humans. This trial is a randomised, controlled, double-blind, multi-centre, multi-country trial with patients at the mild stage of Alzheimer's. The trial is expected to include over 200 patients in four countries and is expected to be completed by the end of 2007 with the publication of results by mid 2008.

Provided that the results of the trial are positive, Numico is confident that the company will be able to commercialise the product concept for Alzheimer's disease in the course of 2008.


UPDATE ON EARTHQUAKE IN INDONESIA

The Indonesian earthquake has resulted in EUR 7 mln of lost sales and EUR 3 mln of lost margin in the second quarter of 2006. Numico's baby food operations in Indonesia have been able to recover much faster from the earthquake than initially anticipated with the basic manufacturing plants having returned to full operation in July. Numico expects no further material loss of sales in the third quarter and the total one-off costs are now expected to be less than EUR 10 mln, of which EUR 4 mln has been taken in the second quarter.


FINANCIAL REVIEW (on a comparable basis4)

First Half Year 2006

       (%)                          Baby Dumex Clinical Total

       Comparable sales growth      10.6  25.7     10.1  12.4

       Acquisitions / divestitures   9.5     -    (2.2)  22.6

       Currency translation effect   1.6   8.8      1.0   2.2

       Impact earthquake           (1.0)     -        - (0.6)

       Reported sales growth        20.7  34.5      8.9  36.6
[4] 'Comparable basis' is at constant scope of consolidation and constant exchange rates and excl. exceptionals (refer to appendix 5 and 10)

Reported sales increased 36.6% to EUR 1,277 mln in the first half of 2006. This growth consisted of 12.4% organic growth, driven by 10.6% organic growth for Nutricia Baby, 25.7% for Dumex and 10.1% for Nutricia Clinical. Growth through acquisitions amounted to 22.6% and currency translation effects accounted for 2.2% growth. The earthquake in Indonesia negatively impacted sales growth by 60 bps. Organic sales growth was driven by 8.2% in volume and 4.2% in price/mix.




                                                     EBITA    change
(EUR  mln)                     Sales             EBITA  margin    bps
                   H1 06 H1 05[5] change[6]   H1 06    H1 06    H1 06
Baby Food            730      666     10.6%     142    19.7%       90
Dumex                186      148     25.7%      33    18.0%       90
Clinical Nutrition   357      326     10.1%      93    26.1%    (120)
Non-allocated          -        -         -    (25)        -        -

Numico continued   1,273    1,140     12.4%     244    19.2%       40


The underlying gross margin improved in the first half 2006 compared to the first half of 2005. This was due to i) favourable product mix and pricing, ii) lower raw material prices - mainly for dairy related products - and iii) cost savings from the various efficiency initiatives.

Numico's overall EBITA margin was 19.2%, an improvement of 40 bps compared to the first half of 2005 despite an increase in A&P and R&D spend of 25% and 21%, respectively.

The effective tax charge and cash tax rate were 29% and 25%, respectively, in line with expectations for the full year. Normalised profit and normalised basic earnings per share amounted to EUR 136 mln and EUR 0.71, up 37.8% and 20.6%, respectively.

Second Quarter 2006



       (%)                          Baby Dumex Clinical Total

       Comparable sales growth       9.8  23.1      9.0  11.3

       Acquisitions / divestitures   8.1     -    (2.5)  20.5

       Currency translation effect   0.2   5.0    (0.1)   0.6

       Impact earthquake           (2.0)     -        - (1.2)

       Reported sales growth        16.0  28.1      6.3  31.2


Reported sales increased 31.2% to EUR 644 mln in the second quarter of 2006. This growth consisted of 11.3% organic growth, 20.5% growth through acquisitions and 0.6% growth as a result of currency translation effects. The earthquake in Indonesia impacted sales growth by 120 bps.


                                                  EBITA    change bps
(EUR  mln)                   Sales           EBITA   margin
                   Q2 06 Q2 055 change6   Q2 06      Q2 06      Q2 06
Baby Food            367    341    9.8%      72      20.1%        240
Dumex                 91     74   23.1%      15      16.5%        550
Clinical Nutrition   184    170    9.0%      48      26.3%      (150)
Non-allocated          -      -       -    (13)          -          -

Numico continued     643    585   11.3%     123      19.3%        160
[5] For reconciliation of pro forma Q1 05 numbers, please refer to appendix 5 and 10 [6] 'Comparable basis' is at constant scope of consolidation and constant exchange rates and excl. exceptionals (refer to appendix 5 and 10)

The gross margin improved in the second quarter 2006 compared to the first quarter of 2006 as well as the second quarter of 2005, driven by i) favourable product mix, ii) lower raw material prices - mainly in dairy related products - and iii) continued cost savings from the various efficiency initiatives.

Numico's overall EBITA margin was 19.3% or 160 bps higher despite an increase in A&P and R&D spend of 21% and 19%, respectively.

Normalised net profit and normalised earnings per share amounted to EUR 73 mln and EUR 0.38, respectively, up 33.2% and 16.7%.



REVIEW BY ACTIVITY (on a comparable basis)7

Baby Food

Nutricia Baby sales increased 10.6% to EUR 737 mln in the first half of 2006, excluding EUR 7 mln of lost sales due to the Indonesian earthquake in May. This growth was driven by 6.1% in volume and 4.5% in price/mix. Western Europe grew by 3.5%, supported by strong performances in the UK and Italy and improving performance trends in Germany and the Netherlands. Eastern Europe and the Rest of the World grew by 21% and 20%, respectively, with particularly strong growth in Turkey and Indonesia.

The EBITA margin - excluding EUR 3 mln loss of margin due to the Indonesian earthquake - was 19.7% or 90 bps higher than in the first half of 2005, despite an increase in A&P and R&D spend of 22% and 13%, respectively. Favourable product mix, lower raw material prices and various cost savings initiatives contributed to this margin improvement.

Nutricia Baby sales grew by 9.8% in the second quarter of 2006, excluding EUR 7 mln of lost sales due to the Indonesian earthquake. Sales in Western Europe grew by 4%, most notably driven by continued strong performance in the UK and improvements in Germany. The EBITA margin was 20.1% or 240 bps higher than in the second quarter of 2005, excluding the loss of margin due to the Indonesian earthquake.

Western Europe is well on track to deliver 4 - 5% sales growth in 2006. Market shares in the UK increased 240 bps to 37.8% in the first half of 2006 and Mellin's IMF market share in Italy increased 430 bps in volume-terms in the first half of 2006. Market shares in the Netherlands are approaching levels prior to the price increase and jar recall that took place in the second half of 2005, having gained 300 bps in the last 4 months. In Germany, Numico's IMF market share improved 180 bps to 36.8% in the first half of 2006.

The roll-out of the new immunity Infant Milk Formulae is also progressing very successfully. The new claim "Naturally Strengthens your Baby's Immune System" is supported by more than 70 publications and 11 clinical trials. The results have been presented at more than 200 medical congresses and seminars, reaching more than 26,000 healthcare professionals and key opinion leaders in over 20 countries. The new immunity claim has already been introduced in 20 out of 31 countries, and will have been rolled-out in the remaining countries by mid 2007.


Dumex

Sales in Dumex grew by 25.7% to EUR 186 mln in the first half of 2006, supported by all countries and with particularly strong growth in China and Vietnam. Growth was driven by 17.1% in volume and 8.6% in price/mix.

The EBITA margin increased 90 bps to 18.0% despite an increase in A&P spend of 42%. Due to the anticipated marketing initiatives in the second half of the year - primarily relating to the launch of the immunity claim - the level of A&P spend as a percentage of sales is expected to be higher in the second half of 2006.

Sales in Dumex increased by 23.1% in the second quarter of 2006 and the EBITA margin was 16.5% or 550 bps higher than in the second quarter of 2005, despite an increase in A&P spend of 27%. This can mainly be attributed to premiumisation of the product portfolio, more stable fixed costs and phasing of A&P.

The integration of Dumex is now complete. The various efficiency initiatives are on track to generate the anticipated annualised cost savings of EUR 5 mln in 2006 and EUR 10 mln in 2007 and beyond. The related acquisition and integration costs amount to EUR 35 mln, of which EUR 23 mln were taken in the first half of 2006. The remaining costs - are expected to be taken in the next 6 months.

[7] 'Comparable basis' is at constant scope of consolidation and constant exchange rates and excl. exceptionals (refer to appendix 5 and 10)

Clinical Nutrition

Sales in Clinical Nutrition grew by 10.1% to EUR 357 mln in the first half of 2006. Growth was driven by Southern Europe (+11%) and Rest of the World (+20%) and partly offset by Northern Europe (+6%), adversely impacted by the changes in reimbursement in Germany. As part of the new German reimbursement guidelines, i) general malnutrition products are now reimbursed, ii) disease-specific products require a higher level of clinical evidence and iii) the emphasis is on full diet instead of supplemental solutions. France, Belgium and Brazil delivered particularly strong performances.

The EBITA margin was 26.1% primarily due to an increase in R&D and A&P spend of 33% and 16%, respectively, which explains the 120 bps decrease compared to the first half of 2005.

Sales increased by 9.0% in the second quarter of 2006 and the EBITA margin decreased 150 bps to 26.3% driven by an increase in R&D and A&P spend of 39% and 12%, respectively.

As part of Numico's continuous assessment of its portfolio, the company has decided to evaluate the strategic alternatives for Coeliac, which may entail a sale of the business. Numico's Coeliac business provides a wide range of gluten-free food products to individuals who suffer from gluten intolerance. The Coeliac sector is witnessing strong growth in the retail channel in certain markets where Numico operates, which has driven the need for a strategic evaluation, which is expected to be concluded before year-end. Numico's Coeliac business generates approx. EUR 20 mln of annualised sales with an EBITA margin of over 20%.


OTHER FINANCIAL INFORMATION

Cash Flow

Total trade working capital as a percentage of sales improved 310bps to 10.9% compared to June 2005. This was driven by a further reduction of trade receivables and an ongoing optimisation of trade payables.

Cash generated from operations increased by EUR 97 mln to EUR 228 mln in the first half of 2006, driven by the strong increase in operating profit and supported by the continuous effort to reduce working capital.

Capital expenditure amounted to EUR 70 mln, or 5.5% of sales in the first half of 2006, which is below Numico's full year expectation of 6 - 7%. This is due to the phasing of certain projects that will only commence in the second half of the year, such as investments in selected supply points and several quality related projects. Free cash flow amounted to EUR 120 mln compared to EUR 32 mln in the first half of 2005, excluding the net cash payment related to the EAC Nutrition acquisition of EUR 1,194 mln in the first quarter of 2006.


Net Debt and Finance Costs

Net debt decreased by EUR 64 mln to EUR 1,591 mln in the second quarter of 2006 due to strong free cash flow. Net finance costs amounted to EUR 19 mln in the second quarter of 2006 compared to EUR 28 mln in the first quarter. This is primarily due to positive currency movements in the second quarter compared to the negative trends in the first quarter. More detailed information can be found in appendix 9.


Shareholders' Equity

Shareholders' equity improved by EUR 44 mln to EUR 724 mln in the first half of 2006. This improvement was driven by retained earnings of EUR 112 mln, partly offset by negative currency translation effects on intangible fixed assets primarily related to the Chinese renminbi. An overview of the movements in shareholders' equity can be found in appendix 4.


A live and on-demand audio web cast of the conference call for analysts and investors on Thursday 3 August at 8.30 hrs CET and the related presentation slides will be available on our website (www.numico.com) at 08.00 hrs CET on 3 August 2006.


For the full version of this release, including all the tables, please click on the link below:

http://hugin.info/130673/R/1067145/180433.pdf


For any questions you might have, please contact:
Numico Corporate Communications:   Tel: +31 20 456 9077
Numico Investor Relations:  Tel: +31 20 456 9003




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