Royal Numico has reported a 3.2% drop in sales to €2,128m for its H1 2002. Sales in the US operations fell 8%, partially offset by a 4.7% growth in sales in Europe and 4.3% in Asia, Africa and America.
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Gross margins over the half year were 61.3%, slightly less than the level achieved last year. There were gross margin improvements in Infant and Enteral Clinical Nutrition, offset by a poor performance at Rexall.
Total operating expenses during the H1 were up 4.6% to €1,029m, excluding a €31m one-off charge as part of an ongoing programme to reduce the cost base of the US businesses. Including the one-off charge, expenses were up 7.7%. A one-off benefit of €10m is included in other operating proceeds, relating to the settlement of a vitamin claim.
As a consequence EBITA fell 29% to €258m, excluding one-off items or 34.4% to €237m including one-off items. The EBITA margin in the H1 fell to 11.1%. The US EBITA contribution of €108m, was impacted by the net effect of the one-off item of €21m. The profit contribution from Infant and Clinical Nutrition increased to €149m, or 5.7%.
The amortisation charge fell to €104m from €110m last year. In May, €500m of the €1bn syndicated loan was repaid and the remaining €500m was refinanced on more favourable terms fixed for the next two years. Total financial expenses declined by €16m to €66m. Reflecting the decline in EBITA, net profit before extraordinary items declined to €23m from €96m last year.
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By GlobalDataCash earnings were €127m for the H1, with cash earnings per share falling to €0.77. Cash inflow from operations was €253m. H1 capital investment was €49m, in line with depreciation. Numico continues to make good progress with working capital management, which fell by €93m to 16.2% of net sales. Goodwill and brands at the end of the half year were €3,250m. The carrying value on the balance sheet was impacted by a currency translation effect of €321m. Overall, the net debt position was reduced by €301m to €2,547m.
Consolidated key figures for HY 2002
€m HY 2002 HY 2001 % change
Sales 2,128 2,198 (3.2)
Gross margin 1,304 1,361 (4.2)
Gross margin % 61.3% 61.9%
EBITA 237 361 (34.4)
ROS 11.1% 16.4%
Cash earnings 127 206 (38.2)
CEPS 0.77 1.27 (39.2)
Jan Bennink, president and CEO since June this year, commented: “Numico is an international group with strong businesses in high potential growth areas. However, we face many challenges and the results that we are announcing today are disappointing.
“We have begun a comprehensive review of all our businesses in terms of strategy, markets and performance. We will also be looking at our organisational structure, evaluating our asset base and consider possible divestments.”
“As part of Numico’s first steps to improve operational efficiency,” he added: “We can today announce the creation of three new board positions: director of R&D; director of operations; and a role to deal with Infant and Enteral Clinical Nutrition.”
Overall, our core businesses are inherently strong and a healthy future awaits Numico. We operate in a number of genuine long-term growth markets and we can leverage our market position and our research expertise in order to return Numico to growth and once again deliver shareholder value.”
Review by segment
Infant Nutrition
In €m Q2 02 VLY FHY 02 VLY
Sales 257 3.3% 501 3.3%
EBITA 45 (4.3)% 91 4.6%
in % 17.5% 18.2%
Sales in Infant Nutrition increased by 3.3% to €501m. EBITA increased 4.6% to €91m. Excluding negative currency effects, sales growth was 4.6%. Within the business, sales growth slowed in some Western European countries, reflecting a variety of external and internal issues. Principally, these related to underperformance in some product areas, slower than expected growth in mature markets, and some supply chain issues.
In Eastern Europe 9.3% growth was achieved, with Russia continuing to show strong growth. The Asia Africa America region recovered from a weak Q1 to deliver growth of 6.6%. Argentina and Brazil were held back by the economic crisis in South America. The EBITA margin was 18.2%, reflecting the benefits of a material margin improvement offset by increased costs. Management will focus on containing costs in the H2.
Enteral Clinical Nutrition
In €m Q2 02 VLY FHY 02 VLY
Sales 131 7.7% 251 8.9%
EBITA 29 0% 58 7.4%
in % 22.3% 23.0%
Sales in Enteral Clinical Nutrition were up 10.1% to €251m (including currency effect sales were up by 8.9%) with EBITA of €58m, an increase of 7.4%. There was strong growth in France, Spain and the Netherlands whilst growth in the UK was more modest at 5%. SHS, our specialised metabolic products business performed well with sales up 20%. EBITA margins were 23%.
GNC
In €m Q2 02 VLY FHY 02 VLY
Sales 403 (5.6)% 814 (2.6)%
EBITA* 54 (22.2)% 102 (25.8)%
in % 13.3% 12.5%
* excluding one-off items
Within the US, net sales at GNC were €814m, down 2.6% compared to a particularly strong H1 2001. Sales increases in the growing diet and sport segment, were offset by a decline in vitamins and herbs. Revenues improved quarter on quarter, but were slightly behind year on year. Overall comparable company owned store sales in the US fell 3.3% and US franchise stores 1.5%. However, in the Q2 the sales slowdown was less marked, with sales in own stores down 1.2% while franchise stores posted growth of 0.4%. GNC operates 5,658 stores worldwide.
EBITA of GNC fell 25.8% to €102m excluding one-off items of €24m, due to lower sales and higher advertisement costs. Including one-off items EBITA was €78m, a decline of 43%.
The restructuring programme at GNC is progressing. In H1 2002, 46 unprofitable stores were closed against a total target of 74. A headcount reduction of 250 has been achieved, with a further 180 to be expected. An extensive refit involving some 4,200 GNC corporate and franchise stores in the US is underway. The remodelling programme is expected to be completed by October. Trading performance at stores that have already been refitted indicates a positive response from our customers. This programme will require a capital expenditure of US$20m.
Rexall Sundown
In €m Q2 02 VLY FHY 02 VLY
Sales 133 (23.1)% 261 (21.6)%
EBITA* 7 (84.4)% 16 (75.8)%
in % 5.3% 6.1%
* excluding one-off items
Sales in Rexall-Sundown fell by 21.6% to €261m. Underperformance in three key brands; Sundown, Metab-O-LITE and Osteo Bi-flex, had a major impact on the sales decline. In the H1 2001 sales were high due to strong forward buying in the retail network.
EBITA, excluding one-off items, fell from €66m to €16m, with the decline in gross margin partially offset by lower advertising and distribution costs. Including one-off items, EBITA was €19m, down 71.2% on lower sales volume.
The Rexall-Sundown team is working hard to address the many challenges that the business faces and to improve performance of the company. Rexall Sundown has had some initial success in leveraging the breadth of the portfolio and selling in product ranges across certain key customers.
Costs have been reduced, with personnel costs aligned to the reduced sales volume. Rationalisation achieved a 20% reduction in SKU’s, with a current count of 1,457 SKUs.
Unicity
In €m Q2 02 VLY FHY 02 VLY
Sales 73 (16.1)% 149 (11.3)%
EBITA 5 (28.6)% 11 0%
in % 7.7% 7.6%
Sales in Unicity were €149m down 11% from €168m in 2001. EBITA remained flat at €11m, assisted by strong cost controls. The sales performance was affected by a strong US dollar against the Japanese yen and challenges resulting from the integration of our businesses in the US market. In contrast with the overall performance of Unicity, there were major successes in new markets, notably Korea and Europe.
Nutritional Supplements Europe
In €m Q2 02 VLY FHY 02 VLY
Sales 46 4.5% 89 3.5%
EBITA (8) (8)
in % (17.9)% (9.2)%
Sales amounted to €89m, for the large part achieved in Western and Southern Europe, with a negative EBITA of €8m.
Dividend
Numico will pay an interim dividend of €0.28 per certificate of share. Shareholders can elect to take the interim dividend in cash or shares. The payment date for the dividend is 5 September. The pay-out ratio of 36% is in line with 2001.
Outlook
The operational results for the H2 2002 are expected to be in line with the operational results before one-off items of the H1 2002. H2 performance will be negatively impacted by a change in the practice of period-end forward buying. A comprehensive review of the strategy, markets and performance has begun. Numico will also be looking at the organisational structure, evaluating the asset base and consider possible divestments.
