Huhtamaki resolves to shape up in New Year
restructuring programme over the next two years in order to improve
efficiency and cost base, especially in its rigid packaging
operations.
As a first step, the company's board of directors has authorised management to initiate local negotiations in certain European countries.
A provision of €46 million will be expensed against the company's 2004 operating income. The actual cash impact in 2005 will be roughly €16 million.
Annual cost savings of €10 million are expected to materialise in full from 2006 onwards.
A second, more sizeable step of the restructuring programme will be announced during the first half of 2005.
"Our initial priority is to improve the efficiency and cost base of existing operations," said Huhtamaki CEO Heikki Takanen.
"This is a prerequisite for further strategic development. The restructuring plans will not hamper the company's ability to pay dividend in relation to its underlying business performance."
The development of the plan comes after the company reported flat sales figures for the third quarter of 2004, due mainly to adverse currency translations and high raw material costs. Net sales of €534 million for the quarter were up by just 1 per cent from the same period last year. In fact, growth significantly slowed down in Europe, with operating profit in the quarter down by 24 per cent to €18 million.
The unprecedented rise in plastics raw materials prices has been a major cause in eroding Huhtamaki's margins. Recently announced increases in sales prices will take effect towards the end of the year, but raw material costs look set to remain high in the short term.
The cost of natural gas and petroleum, the starting point for the production of many types of packaging resins, has increased consistently this year. This has had an inevitable knock-on effect on the cost of manufacturing packaging materials. Some resins are 50 per cent more expensive than they were last year.
The gradual eroding effect of high materials costs can be seen across the year. The company's net sales for January to September amounted to €1.6 billion, one per cent below the corresponding figure for 2003. By improving cost efficiencies throughout the supply chain therefore, Huhtamaki hopes to increase profitability and beat the raw material price squeeze in 2005.
