CROWN VAN GELDER Operating review
Market developments
In Q3 2014 conditions in several markets relevant for CVG remained favourable, positively impacting sales and results.
Despite the traditionally weaker European paper market during the summer holiday period, there was no paper demand related downtime and with the current healthy order book, full capacity utilisation at CVG is expected in the coming months.
In the first three quarters of 2014, the order volume in the European market for woodfree uncoated paper showed an increase of 2% compared with the same period last year. For the full year 2014, CVG foresees a sales volume increase of around the same percentage bringing the total sales volume at 210,000 to 215,000 ton (2013: 206,600 ton).
As outlined in CVG s FOCUS 2016 strategy, commercial focus is especially directed at three target areas: high speed (digital) inkjet, label and specialty packaging, with better margins and good growth perspectives. The improved market conditions also results in favourable sales developments in CVG s focus products. The expected increase in focus product sales for 2014 is in line with management s growth ambition of 20,000 ton for this year, bringing the share of these products in the total sales volume to nearly 50% (FY2013: 40%).
High speed inkjet and speciality packaging show the strongest growth among the focus products. The high speed inkjet product range has been developed for high volume colour inkjet printers. Inkjet printing is applied as printing technology for transactional applications and mailings and also publishers show strong interest in book printing with inkjet technology. In speciality packaging, paper for luxury shopping bags is a fast growing and promising product in CVG s product range, since the EU has decided to fully ban single-use plastic shopping bags in the coming years.
Raw material and energy costs
The development of financial results in 2014 is supported by lower pulp and energy prices. Pulp is the most important raw material for CVG s papers and also the largest input cost in the paper making process. In the first half of 2014, CVG benefited from lower pulp prices, due to extra pulp supply (of around 15% of total supply) coming on stream after the commissioning of new short fibre pulp production capacity in South America. This additional supply is now expected to be fully digested by the market. Combined with stronger pulp demand from China, pulp prices are moving up again. Since pulp is mainly traded in USD, the recent strengthening of the USD compared to the EUR will result in a further cost increase for CVG in the coming period.
After a hit by strong price increases in gas in 2013, CVG has kept gas prices floating in anticipation of lower price levels. During the first half of 2014, gas prices came down markedly, mainly due to mild weather conditions and high gas storage levels in Europe. Since July 2014, geopolitical tensions are adversely impacting gas prices and therefore CVG decided to hedge gas prices for the rest of the year, although against substantially higher forward prices. On balance, costs for natural gas for CVG in 2014 will be over EUR 3 million lower compared to
2013.
Financial position
CVG has taken the necessary steps to consolidate its market position and to safeguard its financial position in a volatile business environment. Although the company s commercial and operational strategy is valid, it should be taken into consideration that market conditions will remain volatile. To counteract pressure on cash flow and results, the company took additional measures to increase market performance and efficiency, to lower costs and to decrease capex and working capital requirements. These measures have resulted in a positive cash position
and no current requirements to employ our overdraft facility.
2014 full year outlook
Financial results in the first three quarters of 2014 were positively affected by improved market conditions, lower pulp and gas prices and results from additional performance and costs measures. Based on the current order book and continued sales growth, especially in focus products, and despite increasing pulp and gas prices, CVG expects a net profit in the second half of 2014 at roughly the same level as in the first half of 2014 (EUR 1.5 million), excluding non-recurring items.
This Q3 trading update was originally scheduled for 13 November 2014, but has been brought forward in connection with today s press release regarding the announcement of an intended public offer on all outstanding shares and depository receipts of Crown Van Gelder. Given the early publication of the Q3 trading update, the financial outlook contains a higher level of uncertainty than usually is the case in Q3 trading update, which means that the net result could be higher or lower than indicated.
Crown Van Gelder will publish the 2014 full year results on 13 February 2015 (before market opening).
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For more information, please contact:
Henk van der Zwaag, CFO, tel. + 31 (0)251 262 201.
Internet site: www.cvg.nl
Profile:
Crown Van Gelder N.V. is a specialist paper manufacturer with around 280 staff, based in Velsen (the Netherlands). The company develops, produces and sells high-quality specialty products in the woodfree uncoated and single-coated paper sectors. The product portfolio includes a market leading range of Crown Letsgo high-speed inkjet papers designed to print forms, statements, direct mail, brochures and (colour) books. Paper products suited as packaging materials for use in combination with foodstuffs, and a product portfolio for customised solutions for self-adhesive labels and base paper grades that are coated, metallised or provided with a (polyethylene) PE coating. Crown Van Gelder N.V. is listed on Euronext Amsterdam.
NOTE: In a separate press release also published today before the opening of the stock exchange, Crown Van Gelder announced the intended offer by Andlinger & Company.-3
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