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2006-03-12 News Headlines

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SIG strategic future packaging markets are supporting growth

SIG Combibloc is growing substantially faster than the market and expects the beverage and food packaging segments to offer future competitive advantages.

As already announced by SIG last November, monolayer PET bottles are expected to partially substitute beverage cartons in the segments of fruit juice based drinks and teas in Germany in the course of this year and the next. In that period, the hitherto very high share of around 60 percent held by the beverage carton in the German market for non-carbonated refreshments is likely to align itself with the 40 to 50 percent European average. By contrast, the competitive advantages offered by the new combiSwift closure will encourage growth in the milk segment. As a result of these changes in the juice segment, SIG began planning adjustments to production capacities in Europe at the end of the year under report already.

Liberated infrastructures are to be relocated to the dynamic growth markets in order to generate potential cost benefits. Part of these restructuring costs impacted the results of 2005; the remaining portion will be assigned to the year 2006. These capacity adjustments will have a positive effect on cash flow by 2006 already and, from 2007 onwards, lead to cost savings in the double-digit million range annually.

Despite the reported weakness in net sales in Germany, the SIG Combibloc Division is reckoning with growth in net sales of 3 to 5 percent for 2006. This is primarily thanks to the still booming markets of Asia, China, Middle East/Africa and, more recently, South America, where SIG Combibloc is growing substantially faster than the market. Robust growth is also expected in the rest of Western Europe, in Eastern Europe and the USA. The food packaging segment will be further expanded to become the second pillar of the division.

The biggest contributor to net sales in 2006 will be the already established applications segment for soups and sauces. In the course of this year, pilot projects will prepare the ground for the industrialization of the filling machines to be used in the new applications segment announced last November – cartons for packaging fruit and vegetables. Given the investments in this new technology, the specific situation in Germany and the unrelentingly high costs for raw materials, the EBIT margin 2006 of the division is likely to be around 8 percent (prior to restructuring), i.e. somewhat below that of 2005. A key objective of R&D in the years to come will be to further reduce the PE content in carton packages as far as possible.

In keeping with the expected development of the divisions, growth in net sales at Group level will rise by 3 to 5 percent, while the EBIT margin, at 5 to 6 percent (prior to restructuring), will fall slightly below the previous year’s level. In the medium term, SIG and primarily the SIG Combibloc Division will benefit from the growing environmental awareness of consumers and more favorable deposit legislation in Germany. In future, the ecological compatibility of the carton, in particular its ability to be recycled and the renewability of wood, its main raw material, will increasingly influence the purchasing habits of consumers across the globe and orient them towards cartons.

Find information about SIG Group.

Read a recent SIG article; 'Towards the end of 2005 and at the beginning of this year, it became evident that the value added bottling strategy of packaging activities with the SIG Group - Beverages is paying off.'

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