2023 interim results: A good result in a challenging market environment

Demand in the first six months of 2023 showed varying trends in the CPH Group’s three business divisions. The production facilities of the Packaging Division were well utilized, while the Chemistry Division saw margin pressures increase and the Paper Division faced a steep decline in demand. Overall, the CPH Group’s 2023 first-half sales of CHF 332 million were a 7.8% decline on the prior-year period, or ??3.9% at constant currency.

Chemistry at solid prior-year level
The Chemistry Division’s facilities for manufacturing molecular sieves for purifying ethanol, natural gas and industrial gases and for concentrating industrial oxygen were well utilized in the first-half period. Demand for its deuterated products for use in laboratory analyses and OLED displays also remained high. But the demand for molecular sieves for use in medical applications fell short of the levels seen in corona times, while weaker economic activity in the construction sector reduced demand for the molecular sieve powders used in window manufacture. Passing the higher costs of procuring raw materials – lithium in particular – on to the market posed a further business challenge. The division’s CHF 58 million first-half sales were 1.9% up on the prior-year period, and EBIT margin amounted to 11.9%.

Paper capacities not fully utilized
The demand in Western Europe for newsprint and magazine paper suffered declines of 25% and up to 30% respectively in the 2023 first-half period. One reason for this is continuing digitalization, which is impacting the sizes and the print runs of newspapers and magazines. At the same time, customers reduced the paper stocks which they had accumulated in fear of a possible energy shortage. The capacities of the region’s paper manufacturers were correspondingly underused. Some of the Paper Division’s competitors announced closures of facilities. But these are not yet sufficient to bring supply and demand back into balance. In Perlen, too, the utilization of the paper machines was below its prior-year level. And with the lower paper sales volumes accompanied by pressure on sales prices, the Paper Division’s first-half sales of CHF 142 million were a 24.5% decline on the prior-year period. The 18.0% EBIT margin, however, was virtually unchanged.

Packaging raises sales and EBIT margin
With the looming threat of supply shortages, many pharmaceuticals manufacturers had increased their safety stocks of numerous raw materials in 2022, and had also ordered their packaging films far in advance. As a result, the Packaging Division experienced record order volumes in the first half of 2023. Its facilities were correspondingly busy, operating at the limits of their capacities. The division is also investing worldwide in expanding its slitting capabilities and further automating production. The first such slitting facilities should come into service at the end of this year. With its higher sales volumes, the division achieved first-half sales of CHF 133 million, up 14.4% on the prior-year period. The high capacity utilization and a very favourable product mix both impacted positively on EBIT margin, which was raised to 15.6%.

Raw materials prices show varying trends
The prices of the CPH Group’s raw materials showed varying developments in the first-half period. Recovered paper prices eased, but remained at high levels. Weaker activity in the construction sector resulted in a lower demand for plastics such as PVC, and the prices thereof fell accordingly. Prices for lithium, however, remained high and very volatile. First-half energy costs were higher than in the prior-year period, despite energy price declines.

Group EBIT margin and net result increased
At CHF 53 million, the CPH Group maintained its first-half EBIT at its prior-year level, while raising its EBIT margin to 16.0%. The net result for the period was improved from CHF 47 million to CHF 61 million. The increase is attributable to a large degree to the previously reported land sales at the Group’s former Full-Reuenthal operating site.

Corporate bond redemption from own funds
With a balance sheet equity ratio of 63.2%, the CPH Group remains in sound financial health, and holds net cash of CHF 76 million. The corporate bond maturing in October 2023 should be correspondingly redeemed from the Group’s own cash resources.

EBIT margins expected to decline in the second half-year
The economic prospects for the second half of 2023 are modest, with global full-year growth expected to amount to some 2.7% according to OECD projections. Increased interest rates are having a particularly dampening economic effect. On the expenditure front, the falling prices of raw materials are providing some relief. But with the steep decline in demand within the Paper Division, the CPH Group’s total sales for 2023 are likely to fall short of their prior-year level, and margins also look set to decline in the second-half period. The CPH Group still expects, however, to report both an EBIT and a net result for the year that are in the higher double-digit millions.