CSM Reports Flat Q1 Results, Divestment on Track

23 Apr 2013 --- In the first quarter of 2013, CSM announced the sale of its Bakery Supplies businesses, completion of which is intended in Q3 2013. Overall volumes in the continuing business decreased by 2.5%, with on balance stable volumes at Purac offset by a decline at Caravan Ingredients.

EBITA before one-off costs for the continuing business increased slightly from €14.4 million to €14.6 million driven by strict cost control. CSM is continuing to increase its investments in new opportunities which will drive future growth.

Last month CSM announced that agreement has been reached with affiliates of Rhône Capital regarding the intended divestment of CSM’s Bakery Supplies businesses. The Bakery Supplies activities will be divested for an Enterprise Value of € 1,050 million. This divestment is an important part of CSM’s strategy to transform into a bio-based ingredients company.

CSM reported a continuing sales decreased from €191.2 million to €180.5 million, a 5.6% decline due to a volume decline of 2.5%, a negative currency effect of 1.8%, and price/mix effect of -1.3%. Continuing EBITA excluding one-off costs increased slightly from €14.4 million to €14.6 million. One-off costs for the continuing business were €4.7 million, consisting of divestment related items. Volumes at Purac on balance stabilized. The Food segment showed a slight decline, whereas Chemicals & Pharma continued to grow. Volumes at Caravan Ingredients declined by 3.9%. Sales in the first quarter for total CSM (including continuing and discontinued) were €779.9 million compared with €798.7 million in Q1 2012. The organic sales decline was 1.9%. EBITA excluding oneoff costs increased from €30.6 million to €31.9 million. On 18 June, the management of CSM will host a Capital Markets Day to give more details of ambitions, strategy, financing structure and targets for the continuing business.

Commenting on the results, Gerard Hoetmer, CEO of CSM, said: “The intended divestment of our Bakery Supplies businesses to Rhône Capital, which we announced on 25 March, is an essential step in our strategy to transform into a bio-based ingredients company. Selling these businesses in one transaction, in accordance with our original intention, will lead to minimal disruption for the divested businesses and the continuing business. We have found in Rhône Capital a strong partner which supports existing management in its global growth ambition. Both parties are working towards a fast finalization and smooth handover of the operations. We continue to expect completion of the transaction in the 3rd quarter of 2013. The continuing bio-based business has had a challenging start to the year. We saw no significant changes in overall market conditions in the first quarter, and sales was impacted by a lower number of trading days compared to Q1 last year."

"Improving on the trend of previous quarters Purac volumes on balance were stable, driven by growth in the Chemicals & Pharma segment, with the Food segment showing a slight decline. Caravan Ingredients was affected by the bankruptcy of major customer Hostess, whose volumes are already gradually being picked up by other industrial bakers (who are also supplied by Caravan Ingredients). EBITA before one-off costs increased slightly due to good cost control. Looking ahead, in parallel with the divestment process of our Bakery Supplies businesses we are working to expand our markets and generate substantial organic growth at the continuing business. First and foremost, this is driven by the investments in product innovation we have made in recent years which give us today an exciting pipeline of new products and customer projects. We will continue to increase these investments in order to access new opportunities which are arising for the continuing biobased business. A wide range of projects are well underway at the continuing businesses, including shaping our combined food strategy, defining the bio-chemicals products and innovation portfolio, establishing a new organization structure, rightsizing the head office, and combining the strengths of both Purac and Caravan so that the organizations can reinforce one another. We have also started a rebranding project in anticipation of the transfer of the CSM name with the divested bakery businesses. On 18 June we will hold a Capital Markets Day at which we will share our ambitions, strategy, financial structure, as well as targets for the continuing businesses in more detail.”

Purac volumes in the first quarter were stable on balance. Food markets, especially in Europe, have not been very supportive to growth. Growth in the food business is driven by innovations and market-share gains, offsetting the impact from low cost-in-use chemical preservation alternatives. Our Chemical & Pharma business benefits from global exposure and continues to grow. There was no meaningful change in volumes at our bio-plastics activity in the first quarter, but we continue to be positive about its progress and its longer-term prospects. Selling prices were impacted slightly negatively by changes in mix and price levels in the quarter. Compared to last year, margins increased as a result of efficiencies and somewhat lower raw materials costs, which mitigated inflationary pressures on other costs as well as operating expenses in the innovation pipeline. EBITA before one-off costs was slightly higher than the previous year at 8.1% of sales (2012 Q1 7.5%). Caravan Ingredients volumes were down by 3.9%. The bankruptcy of Hostess, one of Caravan Ingredients’ largest customers, was a driver of these lower volumes. There were pockets of growth within the overall Caravan portfolio in innovative products to support freshness and shelf life extension. A better mix of products and slightly higher average selling prices benefited overall margins in the first quarter. Expenses were well controlled and approximately in line with the prior year. EBITA before one-off costs was US$ 14.0 million (2012 Q1 US$ 15.4 million). Holding costs before one-off costs were €6.2 million, €1 million lower than Q1 2012. One-off costs in Q1 of €4.7 million related to the divestment of the Bakery Supplies businesses.

The North American Bakery companies had a good first quarter with volumes in line with last year. We estimate this equates to growth in market share, since the total market is still contracting. Growth at Bakery Products NA compensated some losses in traded goods sales at BakeMark. Pricing on average was flat compared to last year. Margins were a little lower as a result of higher raw material costs on average than in Q1 2012. Expenses were well controlled and continue to benefit from the savings realized in 2012. EBITA before one-off costs for the quarter was US$ 14.6 million (2012 Q1 US$ 15.0 million).

Volumes in Europe were 2.5% below last year. A strong development in sales to the supermarket channel was not enough to compensate for lower sales in Artisan and Industry. In the current difficult economic climate in Europe our companies performed well on average in their respective markets. With slightly higher prices, mainly as a result of the better mix of products, we were able to improve margins, which also benefited from good cost control, especially from on-going Relevance savings. This resulted in an EBITA before one-off costs of €6.0 million (2012 Q1 €4.6 million).

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