SOURCE: Royal Numico NV

November 09, 2006 01:57 ET

Third Quarter and First Nine Months Results 2006

SCHIPHOL AIRPORT, NETHERLANDS -- (MARKET WIRE) -- November 9, 2006 --


Continued Double-Digit Sales Growth in Third Quarter

Financial Highlights First Nine Months 2006 (on a comparable basis[1])

* Total sales up 11.6%; EBITA margin at 19.1%

* Nutricia Baby sales up 10.6%; EBITA margin at 19.7%

* Dumex sales up 19.2%; EBITA margin at 16.7%

* Nutricia Clinical sales up 10.1%; EBITA margin at 26.1%

* Normalised[2] profit up 32.1% and normalised basic EPS up 17.0% (at reported rates)

* Cash generated from operations at EUR 397 mln

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

* Total sales up 10.0%; EBITA margin at 18.8%

* Nutricia Baby sales up 10.5%; EBITA margin at 19.7%

* Dumex sales up 7.7%; EBITA margin at 14.0%

* Nutricia Clinical sales up 10.0%; EBITA margin at 26.0%

* Normalised[2] profit up 22.2% and normalised basic EPS up 10.6% (at reported rates)

* Working capital improved 400 bps to 10.2% of sales

CEO Statement

"Numico has delivered double-digit growth through the first nine months of 2006, with sales up 11.6%, accompanied by improved margins of 19.1%. Nutricia Baby achieved double-digit sales growth through strong performances in Eastern Europe, Indonesia and most growth markets in Western Europe. We are particularly pleased with the full recovery after the Indonesian earthquake and successful launch of the immunity claim in nearly all of our markets. Nutricia Clinical posted an improved top-line performance in Q3 as our German business has now stabilised and is poised for growth again in early 2007. Dumex had a good quarterly performance in absolute terms and is on track to achieve 20% growth with an improvement of the EBITA margin to 15% in 2006. Based on our performance to date, we envisage that total sales growth for the year will be around 12% with an EBITA margin of 18.75%."

OUTLOOK 2006

Based on the company's performance in the first nine months, Numico expects that total sales growth for the year will be around 12% with 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.

FINANCIAL REVIEW (on a comparable basis[4])

Reported sales increased 32.9% to EUR 1,933 mln in the first nine months of 2006. This growth consisted of 11.6% organic growth, 20.3% growth through acquisitions and 1.4% growth as a result of currency translation effects. The earthquake in Indonesia, which took place in the second quarter of 2006, negatively impacted sales growth by 40 bps.

The underlying gross margin improved in the first nine months of 2006 compared to the first nine months 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 19.1% or 40 bps higher, despite an increase in A&P and R&D spend of 21% and 15%, respectively.

Normalised net profit and normalised earnings per share amounted to EUR 204 mln and EUR 1.07, up 32.1% and 17.0%, respectively.

Third Quarter 2006

Reported sales increased 26.1% to EUR 657 mln in the third quarter of 2006. This growth consisted of 10.0% organic growth, driven by 10.5% organic growth for Nutricia Baby, 7.7% for Dumex and 10.0% for Nutricia Clinical. Acquisitions - primarily Dumex - contributed 16.2% to the overall growth and currency translation effects had a slightly negative impact of (10) bps.

Numico's overall EBITA margin was 18.8%, an improvement of 30 bps compared to the third quarter of 2005, despite an increase in A&P spend of 16%.

Normalised profit and normalised basic earnings per share amounted to EUR 69 mln and EUR 0.36, up 22.2% and 10.6%, respectively.

REVIEW BY ACTIVITY (on a comparable basis[6])

Baby Food

Nutricia Baby sales increased 10.5% to EUR 379 mln in the third quarter of 2006. In Western Europe, most of Numico's targeted growth markets continued to deliver encouraging sales growth. Nearly all countries outside Western Europe delivered double-digit sales growth with particularly strong performances in Russia, Turkey, the Middle East and especially in Indonesia as its operations fully recovered within one month after the earthquake.

The EBITA margin improved 130 bps to 19.7% in the third quarter of 2006, despite continued double-digit increases in A&P and R&D spend. Favourable product mix and raw material prices as well as various cost savings initiatives contributed to this margin improvement.

Nutricia Baby sales grew by 10.6% and the EBITA margin improved 100 bps to 19.7% in the first nine months of 2006, excluding EUR 7 mln of lost sales and EUR 3 mln of lost margin due to the Indonesian earthquake in Q2 06. The related one-off recovery and rebuilding costs amount to EUR 6 mln to date and the last approx. EUR 2 mln are expected to be taken in the fourth quarter.

Dumex

Dumex grew by 7.7% to EUR 90 mln in the third quarter of 2006 and is on track to achieve 20% growth for the full year. All countries were able to outgrow the exceptionally strong sales performance witnessed in the third quarter of 2005 that resulted from the strategic relaunch of the Dumex master brand. The EBITA margin decreased 80 bps to 14.0% driven by an increase in A&P spend of 30% to support the successful introduction of the new immunity claim in China.

Sales in Dumex increased by 19.2% in the first nine months of 2006 and the EBITA margin was 16.7% or 40 bps higher than in the first nine months of 2005, despite an increase in A&P spend of nearly 40%. This can mainly be attributed to premiumisation of the product portfolio, stable fixed costs and A&P phasing. Due to continued higher A&P spend in the fourth quarter, Dumex' EBITA margin is expected to reach 15% for the full year.

The various efficiency initiatives are also on track, generating 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 5 mln were taken in the third quarter and EUR 27 mln year to date. The remaining EUR 8 mln are expected to be taken in the fourth quarter of 2006.

Clinical Nutrition

Sales in Clinical Nutrition grew by 10.0% to EUR 186 mln in the third quarter of 2006. Growth was driven by Southern Europe and Rest of the World and partly offset by Northern Europe, adversely impacted by the changes in reimbursement in Germany. The performance of the German operations, however, stabilised relative to the preceding quarter and is expected to return to a positive growth trend in the first quarter of 2007. The EBITA margin was 26.0%, a decrease of 90 bps reflecting the relatively light top line performance in the quarter and changes in mix.

Sales increased by 10.1% in the first nine months of 2006 and the EBITA margin decreased 100 bps to 26.1%, driven by increased R&D and A&P spend.

In the second quarter of 2006, Numico initiated a strategic evaluation process for its Coeliac business, including a potential sale, which is expected to be concluded by year-end.

OTHER FINANCIAL INFORMATION

Tax

The effective tax charge and cash tax rate were 29% and 25%, respectively, in line with expectations for the full year. The Dutch government has proposed to further reduce the Dutch corporate income tax rate from 29.6% to 25.5% as per 1 January 2007. The proposed tax rate reduction, which is expected to be ratified in December 2006, will have a (non-cash) impact of approximately EUR (40) mln on the deferred tax asset in the fourth quarter of 2006.

Cash Flow

Total trade working capital improved 400 bps to 10.2% of sales compared to September 2005, predominantly driven by a further reduction in trade receivables and ongoing optimisation of trade payables.

Cash generated from operations amounted to EUR 397 mln in the first nine months of 2006, driven by the strong increase in operating profit and supported by the reduction in working capital.

Capital expenditure amounted to EUR 110 mln, or 5.7% of sales in the first nine months of 2006. Capital expenditure for the year is expected to be at the lower end of the target range of 6 - 7% of sales. Free cash flow amounted to EUR 217 mln compared to EUR 50 mln in the first nine months of 2005, excluding the net cash payment related to the EAC Nutrition acquisition of EUR 1,194 mln.

Net Debt and Finance Costs

Net debt decreased by EUR 73 mln to EUR 1,518 mln in the third quarter of 2006 due to strong free cash flow. Net finance costs amounted to EUR (22) mln in the third quarter of 2006. More detailed information can be found in appendix 5.

Shareholders' Equity

Shareholders' equity improved by EUR 149 mln to EUR 829 mln in the first nine months of 2006. This improvement was driven by retained earnings of EUR 176 mln, partly offset by negative currency translation effects on intangible 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 as well as the related presentation slides will be available on our website (www.numico.com) at 08:30 hrs CET on Thursday 9 November 2006.

[1] 'Normalised' excludes discontinued businesses, acquisition and integration costs, result divestment after tax and exceptionals (appendix 4)

[2] For reconciliation of pro forma Q3 05 sales and EBITA, please refer to appendix 6

[3] 'Comparable basis' is at constant scope of consolidation and constant exchange rates and excl. exceptionals

[4] For reconciliation of pro forma Q3 05 numbers, please refer to appendix 6

[5] 'Comparable basis' is at constant scope of consolidation and constant exchange rates and excl. exceptionals

[6] ' Comparable basis' is at constant scope of consolidation and constant exchange rates and excl. exceptionals


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

Third Quarter and First Nine Months Results 2006: http://hugin.info/130673/R/1087170/190331.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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