Ergis

Press Release

26 February 2009, 10:13

ERGIS GROUP: INCREASE IN SALES AND OPERATING PROFIT IN 2008

The ERGIS Group in 2008 recorded sales revenue of PLN 543.17 million, which is over 27% more than in the previous year. Its operating profit in this period increased up to PLN 18.41 million. A strong weakening of zloty resulted in the net loss in whole 2008, due to unrealised exchange rate differences.

Key events:

  • ­The Group systematically implements the strategy of decreasing operating costs. As a result, the level of the gross profit on sales in the fourth quarter of 2008 was 18.8%, in comparison to 14.8% in the parallel period of 2007. In aggregate, this ratio was 16.7% for the whole 2008, in comparison to the 15.5% the year before.
  • ­ The Group generated PLN 4.1 million of the operating profit in the fourth quarter; i.e. almost 50% more than in the parallel period of the previous year.
  • ­ Despite the increase in the operating profit by PLN 2.2 million up to PLN 18.4 million, in 2008 the Group incurred the net loss in the amount of PLN 6.94 million. The loss results exclusively from a high EUR exchange rate, which lead to higher interest on loans denominated in this currency, and above all the Company recorded exchange rate losses connected with these loans, occurring both at the moment of the repayment of planned instalments as well as at the moment of the current valuation of the outstanding amounts to be repaid in future periods, i.e. PLN 12,417,000.
  • ­It should be emphasized that the ERGIS Group did not use any currency instruments and the unrealised exchange rate differences do not reflect last year cash flows. The Group plans to refinance its liabilities denominated in EUR.

FINANCIAL RESULTS - DETAILS

Financial results of the ERGIS Group after four quarters of 2008 are presented in the following table:

PLN '000

Q4 2007

Q4 2008

Change

Q1-Q4 2007

Q1-Q4 2008

Change

Revenue

142,175 

116,307

-18.2%

426,000

543,171

+27.0%

Gross profit on sales

Operating profit

 

21,016  

2,738

 

21,876

4,087

 

+4.0%

+49.2%

 

66,207

16,200

 

90,810

18,405

 

+37.1%

+13.6%

Net profit

4,215

 -15,497

-

12,859

- 6,938

-

COMMENTS ON 2008 RESULTS

In 2008 the Group recorded the 27% increase in sales. This increase results above all from taking over in the fourth quarter of 2007 the control over the German companies MKF Folien and Schimanski, and from the consolidation of their financial results. Without taking the German companies into consideration, sales in 2008 amounted to PLN 360 million and remained on a stable level in comparison to the previous year. The economic slowdown in the markets where the Group operates was reflected in the decrease in sale revenue in the last quarter of 2008. The decrease in the value of sales of stretch film, PET film and laminates and some other products was recorded, which was caused by the decrease in raw material prices which influenced the level of transactional prices. At the same time, high positive dynamics of PET tapes sales was recorded.

Despite the realisation of the high operating profit in 2008 (PLN 18.4 million), the Group incurred the net loss in the amount of PLN 6.94 million. It is caused exclusively by the very high EUR exchange rate, which led to higher interest on the Group’s loans denominated in this currency and to the very high unrealised exchange rate differences connected with these loans (not reflecting the actual last year cash flows).

INCREASE IN OPERATING PROFIT

The Polish companies of the Group in 2008 realised significant savings in overheads and in sales, amounting to approximately PLN 2.9 million. These costs in 2007 amounted to PLN 46.9 million, and in 2008 to PLN 44 million, which resulted in the increase in the operating profit of the Group.

The gross profit on sales ratio, important for the Group’s activity, was on the higher level than in the previous periods. For the fourth quarter of 2008, the gross profit on sales was 18.8 %, whereas in the parallel period of 2007 it was 14.8%. In aggregate, this ratio for 2008 was 16.7% and it was higher than in 2007 (15.5%).

NO CURRENCY INSTRUMENTS USED

The Group did not use instruments securing against exchange rate changes. In the Polish companies of the Group a relative balance of export and import is maintained, which provides a natural protection against a currency risk. The exposure of domestic entities of the Group to the risk of exchange rate change pertains only to the loans denominated in EUR. It is also significant that EUR is the currency of the German companies of the Group.

PLANS OF ERGIS GROUP

Financial surplus realised by the ERGIS Group is completely sufficient to satisfy current needs and to service the contracted loans. In accordance with the earlier assumptions, the Group intends to refinance a part of the loan contracted for the acquisition of the German companies. The Company however decided to postpone share issue planned for this purpose, and considers, depending on the situation in the capital markets, an option of refinancing these liabilities in other manner (for example by means of a mezzanine financing).

“The ERGIS Group has recently undertaken a number of actions aiming at the reduction of operating costs. The increase in the operating profit in the fourth quarter of 2008 confirms that the Group appropriately responded to the results of the economic downturn. Our net results were affected exclusively by the drastic weakening of zloty. In line with our earlier plans, we intend to refinance a part of the loan contracted for the acquisition of the German companies. Due to the situation in the capital markets, we however postponed the share issue and we consider an option of refinancing these liabilities in other way - for example by means of a mezzanine financing,” comments Tadeusz Nowicki, the President of the Management Board of ERGIS-EUROFILMS S.A.

 

ADDITIONAL INFORMATION

ERGIS-EUROFILMS SA was created through the merger, carried out in 2007, of the listed Eurofilms and its trade investor, ERGIS S.A. The merged Company is Poland’s largest and one of Central and Eastern Europe’s leading manufacturers of PVC products: films, compounds, wallpapers, wall panelling, and windowsills, The Company's offer includes films laminated with a layer of another film, paper, woven and non-woven fabric, etc. printed films, insulation films, packaging films (including films for packaging pharmaceuticals), bus floor covering, compounds for cable manufacturing, interior and exterior wall panels, expansion joint tapes, artificial leather, coated fabrics, tablecloths, and vinyl and paper wallpapers. Additionally, the Company is Poland's second largest manufacturer of stretch films (tensile films, used e.g. for wrapping loads on pallets, PVC thermoshrink films (used, e.g. for food packaging) and PET tapes (used for fastening medium heavy and heavy products and loads), as well as a distributor of polypropylene BOPP film (used mainly for packaging manufacturing). Additional information is also available at www.ergis-eurofilms.eu