Printing paper volumes decline across Europe

Printing and writing paper volumes continued to decline in the third quarter amid deterioration in the economic environment across Europe.

However, the contribution from Xerox’s office paper distribution business, sustained growth in Antalis’ packaging and visual communications activities, and a resilient performance from most of Arjowiggins’ specialty businesses (recycled and transfer papers, bookbinding, security solutions) helped offset this decline in volumes.

Sequana’s sales came in at €817-million, up 4,9% (including 7% growth contributed by Xerox’s office paper distribution business). The impact of changes in exchange rates over the quarter was not material.

EBITDA totalled €20-million for the third quarter, down €5-million (or 22,4%) on the same period in 2013, chiefly reflecting the decline in standard coated and fine paper volumes which was partly offset by lower raw material and energy costs. EBITDA margin slipped 0,9 points to 2,4% of sales.

As part of the Group’s financial restructuring plan completed in late July, Sequana carried out a €66,3-million rights issue and issued bonds redeemable in shares (“ORA”, “ORNANE”) intended for Arjowiggins and Sequana’s banks. These bonds are listed on Euronext Paris.

The operational restructuring plan for Arjowiggins’ printing and writing paper businesses is being deployed in line with objectives. A collective agreement on the employment protection plan (“PSE”) was signed in early October with the Charavines mill works councils. Arjowiggins is also continuing to actively seek a buyer for the Charavines and Wizernes mills in France as well as for Appleton Coated’s mill in the US.

The on-going operational restructuring plan will have a positive impact on EBITDA as from second-half 2015.

Consolidated sales for the first nine months of 2014 came in at €2,537-million, up 4,3% at constant exchange rates on the same period in 2013 (including 7% growth contributed by Xerox’s office paper distribution business), and up 3,4% on a reported basis. Xerox’s office paper distribution business, consolidated for the full nine-month period, accounted for around €180-million of the growth in sales.

EBITDA edged up 1,3% year-on-year to €88-million. Sequana benefited from the positive impact of lower overheads, the decrease in raw material prices and an improved product mix. EBITDA margin remained stable year-on-year at 3,5% of sales. Recurring operating income was €50-million, up from €31-million for the first nine months of 2013 which included a €4,5-million gain arising on changes to pension plans.

In the nine months to 30 September 2014, Sequana generated net attributable income of €136-million – which included the positive non-recurring impacts of the Group’s financial restructuring – versus a net loss of €58-million in the same period one year earlier. These restructuring impacts were recorded in the third quarter and generated net income of approximately €250-million. They mainly consist of debt write-offs obtained on existing Group credit facilities.

Consolidated net debt fell by €276-million to €441-million, down from €717-million at 30 September 2013, reflecting the positive impact of the Group’s financial restructuring.

In view of the economic climate in Europe, printing and writing paper volumes should continue to decline in the last quarter of the year. The Group’s consolidated sales for the year as a whole should be comparable to the level of sales achieved in 2013, owing to the impact of changes in Group structure arising from the acquisition of Xerox’s Western European office paper distribution activities and an improved product mix in the Group’s two businesses.

In light of third-quarter 2014 trends, Sequana considers that its EBITDA margin for the year as a whole should be close to its level in 2013.

For the rest of the year, Arjowiggins should benefit from the resilient performances of its specialty businesses, lower raw material costs and improved industrial efficiency. However, the operating performance of the Security division is likely to be affected by the temporary decline in volumes observed in the Brazilian banknote business in 2014 as the country’s National Printing House and its Central Bank run down inventories.

In addition to the Group structure impact resulting from the acquisition of Xerox’s office paper distribution business, Antalis should feel the benefit of expected cost synergies and an improved product mix.

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