tão bom....
Dear Shareholders,
In accordance with the law, the Directors of CORTICEIRA AMORIM, SGPS, SA, a Public Company, present their:
CONSOLIDATED MANAGEMENT REPORT
SUMMARY OF THE ACTIVITY
Overall, continued during the second quarter macroeconomic conditions observed in the first three months of the year. The downturns registered in the major economies have been less severe than announced in late 2015. In particular the feared inflection of the Chinese economy has been managed effectively and presented so far the desired soft landing of its growth rate.
CORTICEIRA AMORIM continued to take advantage of the reasonably favourable economics of its main markets. The second quarter more than confirmed the good performance of its activity both in terms of sales and results. And like the first quarter, it can be said that the exchange rate effects on these indicators was almost negligible.
Cumulative sales in the half year end amounted to 334 M €, representing an increase of 8% over the same period of 2015. This record result of better second quarter (+ 9.5%) versus the increase in the first quarter (+ 6.3%). The perimeter effect remains at the level of 1%. The volume effect continued to have a majority weight in sales growth.
All Business Units (BU) registered sales growth, either total or to end customers. Special reference to the Cork Stoppers BU, which continued to show a remarkable performance (+ 9.3% in the first half vs. + 7.8% in the first quarter). Also to be taken in account the confirmation of the sales growth in the Floor & Wall Coverings BU (+ 6.3% in the first half vs. + 4.1% in the first quarter).
A good record in terms of operating costs allowed the EBITDA to have a very positive growth, reaching 65.9 M €, an increase of almost 21%. This performance allowed the semester to register a 19.7% ratio on sales (17.6% in the first
half of 2015). Increased operational efficiency and a consolidated sales mix more favourable have allowed a sustained 2
improvement of this important performance indicator. Note that this indicator reached 21.6% in the 2Q16.
The financial function continues to enjoy the combined effects of a low interest rate and a successively lower debt. The estimated income tax did not suffer the effects of provisions for tax procedures. Additionally the cost registered in the first half benefited from a 0.9 M € gain resulting from the review of the 2014 tax declaration, and from the correction of the 2015 tax estimation.
After the results attributed to non-controlling interests, net income for the period reached 35.145 M €, an increase of 34% compared to the value of 26.222 M € booked in the first six months of 2015.
The results for the second quarter amounted to 21.232 M € (2Q15: 17.776 M €).
As from the Shareholder Meeting decision held on 30 March, were distributed on 28 April dividend equivalent to 0.16 euros per share, totalling 21.28 million euros.
OPERATING ACTIVITY 1H16 Raw Materials BU showed an increase in activity directed into the Group (+ 7.8%), accompanying the increase recorded in Cork Stoppers BU, its main customer.
The value of EBITDA recorded was 10.6 M €, a slight decline compared to the same 2015 period (11.1 M €). This unfavourable variation, already felt during the last quarters of 2015, had its origin in the absorption by this BU of the cork price increase of the 2014 and 2015 cork campaign. The control of operating costs and the said increased activity allowed the mitigation of that effect.
The preparation of the 2016 cork campaign took place as planned, having met the targets set for this period.
Cork Stoppers BU sales reached 220.6 M €, a rise of 9.3%, driven by volume and also by the mix effect (more natural cork stoppers). This record has been possible since the second quarter performance (+ 10.7%) was even stronger than
the one presented in the first three months of the year (+ 7.8%). Also noteworthy is the effect of the set-up, in the second half of 2015, of two new distribution companies (USA and Portugal).
Good registers in terms of natural cork stoppers and Neutrocork® stoppers, with emphasis on the performance of the new Neutrocork Premium® stoppers. In the first half began the sales of NDtech stopper.
As for markets, we must note the improvement of the three major geographical destinations of sales. To be also noted that the French market resumed its dynamics after the unfavourable 2014 harvest, which affected the previous year.
The increased activity in conjunction with the positive effect of the sales mix and stable operating costs, resulted in a growth of about 24% of this BU EBITDA (39.8 M €).
EBITDA / Sales ratio reached 18.1% in the semester (1H15: 16%). When considering activity of this BU together with the activity of the Raw Materials BU, this ratio was 22.1% (1H15: 21%).
Composite Cork BU, though hardly benefiting from the exchange rate effect, sales in the half year amounted to 52.1 M €, an increase of 6.2% (1Q16: + 5%). The three main business segments (Retail, Industry and Construction) recorded sales increases. Another highlight is the supply of the inlay to the Hydrocork production of the Floor & Wall. Sales to Asian markets continued to show, in general, increases. The United States maintained the growth dynamics presented in recent years.
The improvement of the percentage gross margin, which benefited from the price decrease and better performance of some of the raw materials, increased activity and stable operating costs led to an EBITDA 9.8 M €, an increase of 48% over the value achieved in the first half of 2015.
Floor & Wall Coverings BU achieved in the second quarter a remarkable increase in sales (+ 8.4%), resulting in an acceleration of the growth rate recorded in the first quarter (+ 4.1%). Reaching 61.1 M € in the six months of 2016 (+ 6.3%), sales seemed to have managed to reverse a decline cycle that lasted for several quarters, except for the slight increase observed in 3Q15. Note that the improvement is due to the performance registered in the sales of manufactured products (+ 7.1%). Of these, the highlight is the Hydrocork. Sales of this new product began in early 2015, representing in 1H16 more than 10% of the total sales. The enormous potential associated with this product and
the successive growth of its sales mark certainly a new beginning in the activity of this Business Unit. 3
Although the percentage gross margin has deteriorated as a result of the change in the sales mix, increased activity and some reduction in operating costs led to a rise in EBITDA to 6.8 M € (1H15: 5.4 M €). The BU goal is not only to maintain a satisfactory rate of growth of sales of manufactured products, but also be able to improve the margins of several new products brought to the market recently, especially the Hydrocork. The restart of the Russian market is another major objective of the BU.
Insulation Cork BU reached 6.4 M € sales, showed the most significant sales growth of all BU (+ 29%). To note, however, that part of this increase relates to higher cork granules sales to Composites Cork BU. In terms of sales to end customers, Sales increased by 17.1%. Sales of its flagship product, expanded cork agglomerate (+10%), and the increase also recorded in sales of specialties such as MDFachada and regranulate, justify such variation.
In split of the activity growth operating costs remained stable. As a consequence, EBITDA presented a favourable variation of 81%, reaching € 1.5 million (23% of sales).
NDTECH
Culminating a five years R&D project developed in partnership with a British company specializing in gas chromatography, a truly innovative technology for the cork industry was implemented, which for the first time, allows to offer wine producers natural cork stoppers, with a guaranteed no detectable TCA*. NDTech is a revolution in quality control top technology, as it introduces individual control of each cork stopper in production lines.
NDTech is able to detect any cork with more than 0.5 nanograms / liter (parts per trillion) of TCA, removing it immediately from the automatic production line. This level of accuracy on an industrial scale is surprising, given that the detection threshold of 0.5 nanograms / liter may be equivalent to a drop of water in 800 Olympic swimming pools.
The performance of NDTech was validated by the world's leading organizations in research associated with the wine industry - Geisenheim University, Germany, and Australian Wine Research Institute, being the only quality control technology and detection of TCA to receive validation by both organizations.
NDTech is being initially applied to the range of premium natural cork stoppers of CORTICEIRA AMORIM, having already begun their marketing. The receptivity of wine producers has been, as expected, very positive, given its importance in premium packaging wine.
The development of NDTech is the culmination of a series of measures aimed at an impeccable sensory control of natural cork, which is long been considered to be the benchmark of the sealing industry and the one that adds more value to the wine.
* Content of releasable TCA less than 0.5 ng / L quantification limit; analysis conducted in accordance with the ISO 20752 standard.
CONSOLIDATED PROFIT AND LOSS ACCOUNT
As mentioned, the increase in sales of the first six months of 2016 was mainly due to the volume effect felt in all business units. The sales mix effect, especially the one in Cork Stoppers BU, eventually also have some weight in that increase. Contrary to what occurred in all 2015 quarters, in which the exchange rate effect benefited all activity, in the two quarters of 2016 this effect may be considered immaterial.
In comparison with 1H15, growth of 25 M € in sales turned out to be somewhat mitigated by the Change in manufactured inventories (decrease of 18 M €). The ongoing effort aimed at better planning and allocation of the finished product to distribution subsidiaries, particularly in Cork Stoppers BU, has somehow also affected such a register. A better percentage margin, the result of a better sales mix, allowed the gross margin value to increase by 11 M €.
As for the operating costs, the increase in about 2.7 M € in Staff costs and Third party supplies and services is explained mostly by the effect of the entry of new subsidiaries. Of the remaining constituents operating costs EBITDA, the change was positive in about 3.2 M €. Note that this favourable variance is more than explained by the fact that the exchange rate differences of the assets receivables and liabilities payables and respective currency hedges
recorded in 1H16 were favourable by 0.9 M €, while the same register of comparable period was negative by 2.5 M €. 4
As a result of the effects of the significant increase in sales, improved percentage gross margin and the favourable evolution of operating costs, EBITDA increased by 21.1%, reaching 65.9 M €. As mentioned above, this absolute value is a percentage of 19.7% of sales, which compares favourably with either obtained in the same half (17.6%) or with that obtained in year 2015 (16.7%).
39,842
10,577 1,490
6,782
9,779
2,616
65,854
Cork Stoppers
Raw-Materials
Insulation Cork
Floor & Wall
Composite Cork
Other
Consolidated
Coverings
EBITDA
During the six months were recorded non-recurring expenses in the amount of 3.73 million euros. This figure is essentially the recording of a provision relating to labour, customs procedures and with the Argentine Central Bank regarding Amorim Argentina. Note that this subsidiary is turned off for more than four years, with an ongoing complex process of legal liquidation of the company. Additionally, in the area of the stoppers it was also registered expenditures concerning business started in the previous year, as well as a settlement related to non-controlling interests originated in a northern Africa subsidiary.
Lower average debt and interest rates benefited once again the financial function. The net amount of the expenses of this function was 952 K €, which compares with the value of 1138 K € in the same period 2015.
The result of associates amounted to 941 K €, slightly less than the same period 2015.