Numico results show struggle not over

Dutch infant food and nutrition company Royal Numico continues to strive for profitability, but despite an improved performance overall, divestments and continued poor performance by its vitamins retail business GNC continue to plague company results.

Pre-tax losses for the quarter were €26 million compared to profits of €20 million for the comparable quarter in 2002. However, for the first half of 2003, pre-tax profits were in the black at €8 million, although this still represented a fall of 88 per cent from the €67 million for the first half of 2002.

In the second quarter of 2003, group sales declined 4.5 per cent to €881 million, compared to the second quarter in 2002. The company says this decline was fully driven by the weak performance of the discontinued businesses.

Group sales in the first half of 2003 amounted to €1.7 billion, a decline of 5.1 per cent. This performance was driven by a decline of 5.5 per cent in GNC and 23.4 per cent in the discontinued businesses which was partly offset by healthy growth in Baby Food (+5.1 per cent) and Clinical Nutrition (+9.6 per cent), according to Numico.

In the second quarter, net sales in Baby Food (including dairy activities) increased 4.8 per cent to €262 million. A broad range of countries contributed to this growth, according to Numico, with the strongest contribution stemming from the developing countries. In the first half of 2003, net sales in Baby Food (including dairy activities) increased 5.1 per cent to €517 million. In line with the second quarter, this healthy performance was driven by strong growth of 12 per cent in the developing markets and a slight growth of 1 per cent in Western Europe.

From a product perspective, sales growth was driven by strong growth in IMF (6-7 per cent) and dry weaning food (7-8 per cent) and minimal growth in wet weaning food (1 per cent).

In the UK, Cow & Gate successfully relaunched the organic jar assortment in the second quarter, allowing Cow & Gate to further strengthen its position in the premium segment of weaning food. Meanwhile, in July, Nutricia successfully introduced a variety of ambient ready meals and fruit purees under the Olvarit brand in the Netherlands.

Net sales in Clinical Nutrition grew by 9.5 per cent to €136 million in the second quarter of 2003. According to Numico, this performance was driven by virtually all countries, with a balance in growth coming from the Western European countries compared to the developing countries. As a result, net sales in Clinical Nutrition increased 9.6 per cent to €261 million in the first half of 2003.

Due to the healthy performance in all areas of the Clinical Nutrition division in general and the higher margin products specifically, coupled with limited cost increases in anticipation of a more focused Clinical Nutrition strategy, EBITA increased by 37.4 per cent in the first half of 2003.

In the second quarter, net sales in GNC declined by 4.2 per cent. However, excluding the sales of ephedra products and ephedra substitutes, the underlying sales growth was positive. In the first half of 2003, total net sales of GNC declined by 5.5 per cent. Although, again excluding sales related to ephedra products and ephedra substitutes, underlying net sales in the first half of this year increased slightly compared to the same period last year.

Ephedra-related sales fell substantially in the quarter, compared to the second quarter of 2002. However, due to a more than doubling of ephedra-substitutes sales compared to the same period in 2002, sales of ephedra substitutes have compensated for 50 per cent of ephedra-related sales in the second quarter, states Numico. Adding that as of the end of June 2003, the sale of all ephedra-containing products at GNC has been completely ceased.

The discontinued businesses included Rexall Sundown, Unicity, VMS Europe and the dairy activities in Brazil and India in the first half and second quarter of 2003. The negative results are mainly driven by Rexall Sundown, Unicity and the dairy activities in Brazil (Mococa) that have been divested in July.

Remaining optimistic, Jan Bennink, Numico​'s president and CEO commented: "With the good results of the first half and the execution of our strategic plan well underway, we feel confident to raise our net sales target for the combined Baby Food and Clinical businesses to 5-7 per cent for the total year. Net sales of GNC are expected to decline only slightly in the second half of 2003, resulting in a decline of 3 - 5 per cent in net sales in 2003. Full year EBITA for the total continued businesses is expected to be between €340 and 360 million.​

"We will continue to focus the company on reducing its debt level and to strengthen shareholders' equity. As a consequence, we do not expect to pay any dividend for the year 2003."​