Hartmann adjusts guidance for 2018 due to prospects of significantly higher energy costs in H2 and a general claim for repayment of a public energy subsidy

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Hartmann adjusts guidance for 2018 due to prospects of significantly higher energy costs in H2 and a general claim for repayment of a public energy subsidy

October 02, 2018 - 16:34
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GENTOFTE, Denmark, Oct. 1, 2018 (Press Release) -To provide the most accurate perspective on management's expectations for Hartmann's underlying operations and development, the adjusted expectations for the profit margin before special items, return on invested capital (ROIC) and total capital expenditure have been prepared exclusive of the effects of IAS 29, Financial reporting in hyperinflationary economies. The revised revenue guidance has been prepared inclusive of hyperinflation adjustments.

Group revenue is now expected to come to DKK 2.1-2.2 billion in 2018 against former expectations of reaching the lower end of the interval for revenue of DKK 2.2-2.3 billion. The revision is predominantly due to hyperinflation adjustments.

Hartmann now expects a profit margin before special items around 10% and ROIC of around 17% against former expectations of reaching the lower end of the profit margin interval of 11.5-13% as well as ROIC of at least 18%. Capital expenditure is still expected to come to around DKK 150 million in 2018.

In H2, Hartmann's earnings are expected to be negatively impacted by significantly higher energy costs in Europe in particular and other markets to a lesser extent.

Earnings are furthermore expected to be negatively affected by a general claim from the Danish Energy Agency for repayment from several Danish companies of public energy subsidies (so-called 'IKV grants') following the receipt of a draft ruling in the pending case on 26 September 2018.

Management has intensified the initiatives to promote sales and produce efficiency gains under the group's 'Perform 2018' programme to sustain the momentum of Hartmann's underlying business and performance in the coming period. The intensification is principally comprised of organisational adjustments across the group, and the 'Perform 2018' programme is progressing as planned and still expected to have a positive effect, which will not be sufficient to compensate for the conditions mentioned above, though. Based on the intensification of the initiatives under 'Perform 2018', Hartmann expects special items to amount to a maximum of DKK -35 million in 2018 against former expectations of around DKK -25 million.

Hyperinflation reporting and guidance

As announced in the Q2 2018 interim report, Argentina has been added to the IPTF's watch list of hyperinflationary economies this year. Accordingly, Hartmann will adjust the Argentinian business' contribution to the consolidated financial statements in accordance with the requirements of IAS 29, Financial reporting in hyperinflationary economies, as from the Q3 2018 interim report. The Argentinian activities comprise less than 10% of the group's total packaging sales volumes.

Prospectively, Hartmann will present selected accounting figures exclusive of hyperinflation adjustments in addition to the reported accounting figures, which will be adjusted for changes in price index and exchange rate in Argentina during the financial year in accordance with IAS 29.

Based on preliminary analysis, adjustment for hyperinflation is expected to further impact the profit margin around -0.5% point and ROIC around -1% point in 2018. These deviations from guidance exclusive of adjustment for hyperinflation have no impact on the group's operations and total cash flows or the ability to pay out dividend.

Going forward, Hartmann will publish and comment on expectations for profit margin, ROIC and total capital expenditure exclusive of adjustment for hyperinflation as this provides the most accurate perspective on management's expectations for Hartmann's underlying operations and development. For accounting technical reasons, revenue guidance will be prepared inclusive of hyperinflation adjustments.

Further information and a detailed review of the consequences of implementing IAS 29 in Hartmann's financial reporting will be disclosed in the Q3 2018 interim report on 13 November 2018.