Challenging first six months

Challenging first six months

• Positive trend in demand in all segments of the paper division
• Efficiency temporarily curbed by investments in machinery upgrades
• High pulp costs caused by currency effects impact on profitability
• Strong balance sheet – equity ratio 51.6%
• Real estate project remains on track
As expected, the Cham Paper Group‘s paper division had a challenging first half in 2015. Investments in machinery upgrades to increase capacity in Carmignano at the start of the year and the relocation of the coating machine from Cham to Italy in the second quarter increased costs and led temporarily to restricted capacity and production inefficiencies. The strengthening of the US dollar against the euro also resulted in significantly higher pulp prices, which could not be passed on directly to customers in the form of price rises. In the new real estate division, preparations for converting the industrial site into a new urban district proceeded according to schedule.
In the first half of the year, the Group achieved a turnover of CHF 100.8 million. Although this is 13.8% lower than in the previous year, in local currencies turnover is actually on a par with 2014. Operating profit before restructuring costs came to a modest CHF 1.5 million (CHF 5.5 million in the same period last year), with the net result virtually even at CHF 0.1 million (CHF 3.6 million).

Paper division
Turnover and profits did not develop in line with the opportunities presented by the market over the first half of the year. The comprehensive upgrade of PM4 in Carmignano to increase capacity and efficiency was completed on schedule at the start of the year. The start-up process proved more difficult than anticipated, however, and the full production potential could not initially be utilised. It was not until February that the machinery was operating at full capacity. The challenging task of relocating the complex digital imaging products to Italy is also going well, albeit with some departures from the budget and timetable. Production costs have increased across the board under the impact of the pulp price, which is traded in US dollars. The paper division generated net turnover of CHF 100.4 million. Gross profit decreased to a disproportionately high extent from CHF 14.9 million to CHF 10.8 million, while operating profit came to CHF 1.4 million (previous year CHF 5.0 million). Market demand (however) is satisfactory to good in all segments. The strategic positioning of all three segments in the paper division is promising:
In volume terms, sales in the consumer goods segment were on a par with the previous year in the first six months. The food/non-food and wet glue labels segments enjoyed a positive trend, each growing by almost 12%. In the tobacco segment, the fall in volumes in Europe due to lower demand and more stringent legislation was not entirely offset by growing demand from Asia.
Turnover in products for industrial applications (IR) was up year on year. The Cham Paper Group has further expanded its IR activities in the USA, South America and Asia. Persistently high demand permitted the introduction of price increases, which will boost the result in the second half of the year.

The market for digital sublimation printing continues to grow at an above-average rate, prompting many new suppliers, particularly from Asia, to crowd onto the market offering cheap products. Since production costs are now lower, however, following the transfer of operations to Italy, the Cham Paper Group will be able to hold its ground against the competition.
The transfer of coating technology has been delayed, leading to supply and capacity bottlenecks. The sales team was unable to fulfil all customer orders in the second quarter. Additional investments have since been made in Italy to increase capacity and thus meet the rising demand for DI products.

Real estate division
Another event allowing the general public to have their say was held in late January. This was an opportunity for residents to evaluate the master plan and outline project devised for developing the Papieri-Areal site. Based on their feedback, the outline project and the plan for the open spaces were fleshed out and revised by the team responsible.
In early April, the community of Cham and Cham Paper Group Schweiz AG as the landowner initiated the final phase of the joint planning process by drafting the zoning plan for the Papieri-Areal. The contents of this plan, comprising planning documents with binding regulations and a supplementary planning report, are currently being finalised together with the association and in consultation with specialist cantonal departments. An environmental impact assessment is also currently being prepared for the planned development of the Papieri-Areal and the municipal outline plan and the building and zoning regulations are being revised.
Once these have been circulated to the municipal committees and endorsed by the town council of Cham, the zoning plan and environmental impact report will be presented to the cantonal authorities for preliminary examination on schedule in early October. The aim is still to hold the vote on the zoning plan and the environmental impact report in summer 2016. A potential phasing concept has also been devised in parallel to the zoning plan process.
The space that has been freed up on the factory site has already found numerous temporary uses by more than 50 different tenants, with new enquiries still being received. The real estate division generated turnover of CHF 0.7 million in the first half of 2015 and a more or less even operating profit (EBIT). The development costs for the Papieri project have been capitalised.

Balance sheet remains strong
Despite a dividend payment, the further weakening of the euro and the associated lower valuation of the Italian assets in Swiss francs, the Cham Paper Group still has a strong balance sheet. The equity ratio stood at 51.6% at the end of the first half of the year. The Group has no net debt. The site in Cham is still valued at acquisition cost.

Positive outlook
The Board of Directors and the Executive Management Board believe the Group is well positioned. The paper division serves attractive growth markets across all three of its segments – consumer goods, industrial release and digital imaging. Cost control continues to present a challenge. The exchange rate between the US dollar and the euro and the associated higher pulp prices will continue to impact negatively on the paper division’s operating result in the second half of the year.

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