Huhtamaki European sales hit by rising costs
in the third quarter of 2004 due 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. Growth accelerated in the Americas, but slowed down in Europe and Asia-Oceania-Africa.
In Europe in fact, operating profit in the quarter was 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.
Benzene, which is directly affected by oil prices, is used to make styrene. The price of benzene has now reached historically high levels - prices have been rising steadily since the start of the year, and are now double what they were six months ago.
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.
In Europe, net sales in thethird quarter declined by 1 per centagainst the correspondingperiod in 2003 to€295 million. Salesvolumes were also down by1 per cent, reflecting marketsoftness and the recenttransfer of production to theAmericas.
The nine-monthsales figure declined by 3 per centto €885 million.Consumer goods packaginghad a disappointing quarter,largely due to the poor icecream season affecting bothrigid and flexible packaging.
In the Americas however, Huhtamaki reported a sales increase of 6 per cent to€158 million in thequarter. Sales volumesincreased by 20 per cent and atconstant exchange rates thesales growth amounted to16 per cent.
The region's operating profitincreased by 140 per cent to€8 million in the quarterand by 44 per cent to €27 millionin January-September.
But 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.
Huhtamaki believes that in the short term, the company will continue to enjoy volume growth in the Americas, with weaker sales in Europe, especially for rigid consumer goods packaging. But excluding potential one-time costs and barring further raw materials price shocks, the company expects full-year earnings per share to improve against 2003.