Frigoglass SAIC has announced unaudited results for the first quarter ended 31 March 2017
First Quarter 2017 Highlights
Sustained growth momentum in Europe driven by increased sales to Coca-Cola bottlers and breweries
Double digit sales growth in Service business mainly led by EuropeLower Cool sales in Asia due to China's plant closure; Excluding China, Cool sales grew 1% year-on-yearNaira devaluation and weak Jebel Ali business impacted Glass OperationsGroup EBITDA margin reduction was driven by the lower Cool business margin, partially offset by 90 bps improvement in Glass Operations following price adjustments and Metal Crowns solid performance
Financial Overview
First quarter sales declined by 7.5% to €94.3 million, primarily driven by significantly lower sales in Asia following the discontinuation of manufacturing operations in China in the third quarter of 2016 and intense competition in Southeast Asia. Eastern Europe's sales were up by a double-digit rate primarily reflecting cooler investments from breweries and higher year-on-year service business related sales.
In Western Europe, growth momentum sustained following ICOOL orders from Coca-Cola bottlers. Sales in Africa declined by a double-digit rate due to lower demand for coolers in East Africa region. Glass business' sales declined by 5.4%, driven by the devaluation of the Nigerian Naira and lower demand in the Dubai-based operations. Gross Profit (excluding depreciation) decreased by 16.6% to €18.0 million, with the respective margin declining by 210 basis points year-on-year to 19.1%.
The margin decline mainly reflects the cost underabsorption due to lower sales in Africa and Asia and increased raw material costs, more than offsetting the positive effect from the better geographic sales mix due to Europe's increased contribution and Service business performance. EBITDA margin reduction also reflects the devaluation of the Naira and the low cost absorption due to the volume decline in Jebel Ali glass business.
The positive currency translation impact on our cost base in Nigeria and ongoing cost control measures resulted in operating expenses reduction of 8.4% to €10.5 million. Our cost control initiatives were mainly towards reducing administrative expenses. EBITDA declined by 11.7% to €9.4 million, with the respective margin declining by 50 basis points to 10%. Following the lower year-on-year deprecation charges, Operating Profit (EBIT) reached €2.6 million, 7.1% higher year-on-year. Net finance cost reduced by 20.8% to €7.5 million, mainly reflecting lower year-on-year foreign exchange losses.
Frigoglass reported net losses of €12.2 million, compared to losses of €8.3 million, impacted by €3.7 million non-recurring expenses related to the capital restructuring process and higher taxes. Excluding the capital restructuring related expenses, Frigoglass reported a net loss of €8.5 million, broadly unchanged to the first quarter of 2016. Net debt reached €329.4 million, compared to €308.8 million last year. The 12-months (LTM) Free Cash Flow generation was more than offset by interest and taxes paid, capital expenditure and adverse foreign currency movements, resulting in a higher year-on-year net debt level. LTM taxes paid of approximately €14 million reflect a taxable profit mix skewed towards higher tax-rate jurisdictions, like Russia and Nigeria.
Capital expenditures reached €1.8 million in the quarter, compared to €2.8 million last year. 1Q17 capital expenditures reflects pre-buying materials for a furnace cold repair in Nigeria later in the year. Total equity was negative at €109 million at the end of March 2017. Equity was adversely affected mainly by the losses within the quarter and €3.7 million capital restructuring related expenses
Segmental Review
Cool Operations' sales declined by 8.2%, mainly led by lower demand from Coca-Cola in Russia, Romania and Italy. Sales to breweries were marginally down versus last year following lower cooler placements in Africa, partly offset by increased investments in Russia. Excluding China, Cool Operations' sales would have been up 1.1% year-on-year.
Europe
Sales in Eastern Europe increased by 14% in the quarter, reflecting Russia's ongoing recovery and the expansion of the Integrated Services offering to more regions in this market. Following signs of macroeconomic environment improvement, key customers in Russia's beer segment invested in coolers to improve their execution in the market place. Sales to Coca-Cola bottlers in the region were down year-onyear, mainly reflecting orders being postponed to the upcoming quarters. Sales in Western Europe were up 15% year-on-year, primarily led by increased demand from the Coca-Cola bottler in Germany.
Africa and Middle East
Lower sales in Nigeria and East Africa resulted in a double-digit sales decline in Africa and the Middle East. In Nigeria, trading conditions remained difficult, impacting our customers' cooler investments. Our sales in East Africa were down year-on-year, mainly due to lower demand in Kenya and Uganda.
Asia and Oceania
Sales in our Asian business declined by 38% year-on-year, mainly reflecting the closure of China's plant which had a significant adverse impact on orders in this market. In Vietnam, the intense competition impacted our sales in the quarter. Excluding China, sales in our Asia business grew 2.5%, reflecting higher cooler placements in India.
First quarter EBITDA was €4.8 million, compared to €6.1 million last year, with the respective margin declining by 100 basis points year-on-year to 6.9%. The higher contribution of Europe in the sales mix and the incremental sales of the Service business were more than offset mainly by fixed cost under-absorption in Africa and Asia and higher raw material costs. Operating Profit (EBIT) was €1.3 million, compared to last year's operating profit of €2.1 million. Cool Operations reported net losses of €11.6 million in the quarter, versus €6.9 million net losses a year ago, impacted by €3.7 million expenses related to the capital restructuring process.
Glass Operations
The impact from the devaluation of Nigeria's Naira and the lower year-on-year demand in the Dubai-based glass operations in the quarter resulted in a 5.4% sales decline in the Glass business. Nigerian operations sales increased by 5.2% year-on-year, primarily driven by volume growth in Metal Crowns and price increases.
Sales in our core glass operations were down 3.5%, reflecting the adverse Naira translation impact in the quarter. In local currency terms, sales in our Nigerian operations grew 57% year-onyear. Pricing initiatives to partially absorb the cost inflation caused by the devaluation of the Naira and continued demand from pharmaceutical companies were the main drivers of this performance. Metal Crowns and Plastic Crates had a good performance in the quarter, with sales growing 46% mainly on strong demand from the local Coca-Cola bottler and new customers.
Sales of our business in Dubai declined by double digits due to lower demand from soft drink customers in Asia and the late introduction of new products in the market. First quarter EBITDA was €4.6 million, same as last year’s level. The EBITDA margin improved by 90 basis points to 19.1% reflecting the better absorption of fixed costs due to the volume increase in Beta Glass and Crowns, pricing to partially offset Nigeria's currency devaluation impact and operating expenses reduction initiatives. Operating Profit (EBIT) was €1.4 million, compared to €0.3 million last year, assisted by lower depreciation charges. Glass Operations reported a net losses of €0.6 million, compared to losses of €1.4 million in 1Q16.
