SOURCE: Royal Numico NV

May 02, 2006 02:23 ET

Royal Numico: First Quarter Results 2006

Strong Start to the Year - Outlook Raised

2 May 2006

SCHIPHOL AIRPORT, NETHERLANDS -- (MARKET WIRE) -- May 2, 2006 --

Financial Highlights First Quarter 2006 (on a comparable basis)


* Total sales up 13.6%; EBITA margin at 19.2%

* Nutricia Baby sales up 11.5%; EBITA margin at 19.3%

* Dumex sales up 28.3%; EBITA margin at 19.4%

* Nutricia Clinical sales up 11.2%; EBITA margin at 26.0%

* Normalised[2] profit up 43.5% and normalised basic EPS up 25.5% (at reported rates)

CEO Statement


"2006 is off to a strong start, with record-high organic sales growth of 13.6% and EBITA margin reaching a high of 19.2%.

All three divisions delivered double-digit organic sales growth, driven primarily by volume increases. We are particularly encouraged by the very strong performance of Dumex, which became part of the Numico group in early 2006. Dumex achieved sales growth of 28.3%, with margins at 19.4%. The integration is nearly complete, having been executed quicker than anticipated.

Nutricia Baby Food delivered nearly 12% sales growth at healthy margins of above 19%. The Baby division sourced this growth from strong performance in all regions. Contributing to this, Mellin advanced well, with volume growth of 14% and value growth of 9%. The integration of Mellin will be completed upon the insourcing of Mellin's IMF production, which takes place in the second quarter of 2006, with confirmation of anticipated cost savings.

Nutricia Clinical continued its solid performance with a sales growth of 11.2% and margins at 26%. A somewhat lower sales growth in Germany was compensated for by stronger growth in the ROW.

Based on this strong start to the year, we feel confident to raise our sales growth target to between 12% - 13%, and to raise the EBITA margin target by 25 bps to 18.75% for 2006."


+------------------------------------------------------------+
| (EUR  mln)               | First Quarter  |     % change   |
|-----------------------+----------------+-------------------|
|                       | 2006 | 2005[3] | comp.[1] | actual |
|-----------------------+------+---------+----------+--------|
| Sales                 |  633 |     565 |     13.6 |   42.6 |
|-----------------------+------+---------+----------+--------|
| EBITA                 |  118 |     107 |      9.2 |   45.7 |
|-----------------------+------+---------+----------+--------|
| Normalised profit     |   63 |      44 |        - |   43.5 |
|-----------------------+------+---------+----------+--------|
| Normalised EPS2 (EUR )| 0.33 |    0.26 |        - |   25.5 |
|-----------------------+------+---------+----------+--------|
|                       |      |         |          |        |
|-----------------------+------+---------+----------+--------|
| Profit for the period |   47 |      45 |        - |    6.3 |
|-----------------------+------+---------+----------+--------|
| Basic EPS (EUR )      | 0.25 |    0.26 |        - |  (4.2) |
|-----------------------+------+---------+----------+--------|
| Diluted EPS (EUR )    | 0.24 |    0.25 |        - |  (3.2) |
+------------------------------------------------------------+


OUTLOOK 2006


Based on the strong start to the year and the expected performance for the remainder of 2006, Numico raises its total sales growth target to 12% - 13% (previously 11% - 13%) and expects the EBITA margin to improve by 25 bps to 18.75% for the year. These targets are all based on constant scope of consolidation, constant exchange rates, excluding exceptionals and barring unforeseen circumstances.


FINANCIAL REVIEW (on a comparable basis[4])

First Quarter 2006

(in %)                      Baby Dumex Clinical Total

Comparable sales growth     11.5  28.3     11.2  13.6

Acquisitions / divestitures 11.2     -    (1.6)  25.0

Currency translation effect  3.1  12.9      2.2   3.9

Reported sales growth       25.8     -     11.8  42.6

Reported sales increased 42.6% to EUR 633 mln in the first quarter of 2006. This growth consisted of 13.6% organic growth, 25.0% growth through acquisitions and 3.9% growth as a result of currency translation effects. Organic sales growth was driven by 11.3% in volume and 2.3% due to price/mix. This is a record performance for Numico, driven by organic sales growth of 11.5% for Nutricia Baby, 28.3% for Dumex and 11.2% for Nutricia Clinical.

   (EUR  mln)                   Sales          EBITA EBITA margin
                      Q1 06 Q1 05[4] change[5] Q1 06        Q1 06
   Baby Food            363      325     11.5%    70        19.3%
   Dumex                 95       74     28.3%    18        19.4%
   Clinical Nutrition   173      156     11.2%    45        26.0%
   Non-allocated                                (13)            -

   Numico continued     630      555     13.6%   121        19.2%

The gross margin in Nutricia Baby and Nutricia Clinical improved in the first quarter 2006 compared to the first and the last quarter of 2005. It is to be noted that Numico's overall gross margin in the first quarter of 2005 does not include the activities of Mellin and Dumex.

Numico's overall EBITA margin was 19.2% or 70 bps below the level of the first quarter of 2005 which can be explained by an increase in A&P and R&D spend of 27% and 23% respectively.

Normalised net profit and normalised earnings per share amounted to EUR 63 mln and EUR 0.33, respectively, up 43.5% and 25.5%.


REVIEW BY ACTIVITY (on a comparable basis[4])

Baby Food

Nutricia Baby sales increased 11.5% to EUR 363 mln in the first quarter of 2006. This performance was driven by improved sales growth across all regions. Western Europe grew by 3%, supported by strong performances in the UK, Italy and France.

Western Europe was adversely impacted by Germany as it repositions to improve its performance. Eastern Europe and the Rest of the World grew by 18% and 30%, respectively, with particularly strong growth in Turkey, Indonesia and the Middle East.

Mellin's improved sales performance in the second half of 2005 continued in the first quarter of 2006. Sales were up 14.0% in volume and 9.1% in value terms, thereby continuing to gain market share in the first quarter of 2006. The integration of Mellin is now completed with the insourcing of Mellin's IMF production taking place in the second quarter of 2006. Numico reconfirms gross annualised cost savings of EUR 15 mln which will be used to reinvest into the business and increase the EBITA margin.

The EBITA margin was 19.3% or 60 bps lower than in the first quarter of 2005, despite an increase in A&P and R&D spend of 18% and 22%, respectively.

Dumex


Sales in Dumex grew by 28.3% to EUR 95 mln in the first quarter of 2006, with particularly strong growth coming from China and Vietnam. This strong start to the year was supported by Dumex' strategic focus on the premium product segment.

The EBITA margin was 19.4% which was substantially higher than the average pro forma EBITA margin of 14% in 2005. A&P spend increased 71%, representing an increase of 370 bps to 14.9% of sales compared to the first quarter of 2005. Due to the anticipated marketing initiatives in the remainder of the year the average level of A&P spend as a percentage of sales in 2006 will be higher than the level in the first quarter of 2006.

The integration of Dumex is nearly complete. The integration and optimisation of the continued operations have been finalised and the Hangzhou cereals plant in China has been sold. The operations in the Philippines and the Cow & Gate operation in China are being closed and a decision on India will be announced before the end of the second quarter 2006. The various efficiency initiatives are well on track to generate the anticipated annualised cost savings of EUR 5 mln. Acquisition and integration costs for Dumex will amount to EUR 35 mln, of which EUR 17 mln has been taken in the first quarter of 2006. Most of the remaining costs will occur in the second quarter of 2006.

Clinical Nutrition

Sales in Clinical Nutrition grew by 11.2% to EUR 173 mln in the first quarter of 2006. Growth was driven by Southern Europe (+13.1%) and the Rest of the World (+21%) and to a lesser extent by Northern Europe (+7%) the latter being impacted by the short term effects of the changes in reimbursement in Germany. The Nordic countries, France and Brazil delivered particular strong performances. All product categories contributed to this performance with particularly strong growth in GI Allergy.

The EBITA margin was 26.0% despite an increase in R&D and A&P spend of 26% and 21%, respectively, which explains the decrease of 70 bps compared to the first quarter of 2005.

OTHER FINANCIAL INFORMATION

Trade Working Capital


Total trade working capital as a percentage of sales improved 210 bps to 12.5% compared to the first quarter of 2005. Numico's continuous effort to lower the level of trade working capital as a percentage of sales has resulted in an improvement of 190 bps to 12.1% for Nutricia Baby and Clinical compared to a year ago. Dumex improved its trade working capital by 430 bps to 15.0% compared to a year ago.

Cash Flow


Cash flow from operating activities increased by EUR 46 mln to EUR 79 mln in the first quarter of 2006, driven by the strong increase in operating profit and supported by the continuous effort to reduce working capital. Free cash flow amounted to EUR 49 mln, excluding the net cash payment related to the EAC Nutrition transaction of EUR 1,190 mln.

Capital expenditure amounted to EUR 31 mln, or 5% of sales in the first quarter of 2006, which is below Numico's full year expectation of between 6 - 7%. This can mainly be attributed to the phasing of certain projects that will only commence during the remainder of the year. Investments related to innovations, quality and food safety and the Dumex plant in Shanghai are the most important components of the capital expenditure in addition to ongoing maintenance and IT investments.


Net Debt and Finance Costs


Net debt increased by EUR 1,140 mln to EUR 1,655 mln in the first quarter of 2006. The increase is due to the acquisition of EAC Nutrition (EUR 1,190 mln) which was completed on 2 January 2006. In the first quarter, EUR 145 mln of the bank loan facility was redeemed and the commercial paper programme was increased by EUR 69 mln.

Net finance costs amounted to EUR 28 mln in the first quarter of 2006 compared to EUR 16 mln in the fourth quarter of 2005, driven by an increase in the net debt position as well as by negative foreign exchange impacts on foreign currency denominated deposits of EUR 4 mln. More information can be found in appendix 8.


Shareholders' Equity


Shareholders' equity improved by EUR 59 mln to EUR 739 mln in the first quarter of 2006. The improvement was mainly driven by retained earnings of EUR 47 mln and direct equity movements. An overview of the movements in shareholders' equity can be found in appendix 4.


A live audio web cast of the analyst conference call and the related presentation slides will be available on our website (www.numico.com) as of 10:30 hrs CET.

[1] 'Comparable basis' is at constant scope of consolidation and constant exchange rates and excluding exceptionals (refer to appendix 5 and 9)

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

[3] For reconciliation of pro forma Q1 05 sales and EBITA, please refer to appendix 5

[4] For reconciliation of pro forma Q1 05 numbers, please refer to appendix 5

[5] Based on constant scope of consolidation and constant exchange rates and excludes exceptionals (pls refer to appendix 5 and 9)


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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