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2006-11-07 News Release

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Constantia Packaging Q3 report

Constantia Packaging Group has recorded further sales and earnings gains in nine months due to increased exports and investment spending, as well as consumption.

The economy continues to expand this year. The 2006 growth
forecast for the euro zone is 2.5%, and for Austria it is 3.1%. This favorable trend will also have a positive impact on Constantia Packaging Group, although both business segments will face higher commodity prices in some areas (especially paper and solvents) and continued high levels in others (aluminium and energy).

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In 2006, Constantia Packaging Group has recorded further sales and earnings gains. The companies acquired in Eastern and Southeastern Europe (Duropack Trakia, Bulgaria, Dusan Petronijevic, Serbia and Constantia Kuban, Russia) were successfully integrated into the Group, and made positive earnings contributions from the outset. These contributions more than offset the lost earnings caused by the 2006 sale of Wanfried-Druck Kalden in Germany.

Constantia Packaging Group’s nine month sales totaled €790.7 million, up 5.8% from €747.1 million the previous year. Both business segments contributed to this increase.

Net income for the period was up 7.5% from €35.3 million to €38.1 million, driven by the favorable operating earnings trend and the increased income contribution from the AMAG equity interest. These gains were partially offset by higher interest expense (from the debt-financing of the Duropack Trakia acquisition) and the increased tax rate as a result of the earnings gains in countries with high tax rates (notably Belgium and Germany). Also, the previous year’s net income included non-recurring financial income from the disposal of an equity interest. Adjusted for this non-recurring income, net income rose by 10.5% during the period.

Despite the increased demand for flexible packaging, the segment faced substantial cost pressures, especially for materials. Prices of some commodities such as solvents continued to increase, while those of other commodities (aluminum and energy) remained at high levels.

Constantia Flexibles recorded nine-month sales of €577.5 million, up 2.1% from €565.7 million. This increase was achieved in spite of the February 2006 deconsolidation of Wanfried-Druck Kalden, whose previous year’s sales contribution was €20.3 million. Meanwhile, the Polish company ColorCap, acquired in the spring of 2006, was consolidated only beginning in September.

In September 2006, Constantia Flexibles acquired a majority interest in the packaging activities of the German manufacturer Hueck Folien, subject to the approval of the relevant competition authorities. Hueck ranks among the leading manufacturers of high-quality flexible packaging for pharmaceuticals and foods. With this complementary acquisition, Constantia Flexibles strengthens its global market position while substantially expanding its position in the pharmaceuticals and healthcare segment as well as regionally in the United States.

The Duropack Group’s innovative prowess received special recognition this year when the company received the Austrian State Award for transport packaging. The Group’s “multisize box” is a highly adjustable container whose length and width can be modified into 30 different transport formats.

The fact that margins did not keep pace with operating earnings can be attributed to significant paper price increases. In the past 12 months alone, prices for corrugated board base paper increased by more than 30%. To date, this cost increase could only be partially passed on to customers. Yet despite this extraordinary increase in the cost of materials, operating margins remained near their previous year’s levels. The EBITDA margin stood at 13.6%, down from 13.7%, while the EBIT margin contracted from 9.0% to 8.5%. The Bulgarian subsidiary Duropack Trakia provided a substantial contribution to the increased sales and earnings. This company, acquired last year, clearly illustrates the wisdom of the Group’s focus in the growth regions of Eastern and Southeastern Europe.

The company issued a statement of intent to acquire an additional 40% stake in AMAG. Due diligence is presently being performed, with the results expected before the end of the year. These results and the negotiations with our partner will determine whether this acquisition, which would give Constantia Packaging AG a majority stake in AMAG, makes sense.

The outlook for continued economic growth was once again positive in the fall of 2006. We would like to continue to take advantage of these opportunities. For the full year 2006, we expect increased sales and improved operating earnings despite the higher commodity prices and the continued high level of energy prices.

See more details and find information about Constantia Packaging AG.

Read a recent press release about - Constantia Flexibles acquires majority interest in a leading European manufacturer of flexible packaging for the pharmaceutical, healthcare and food industries.

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