Ergis

Press Release

13 May 2009, 11:40

ERGIS GROUP: RECORD-BREAKING OPERATING PROFIT IN Q1 2009

The ERGIS Group in the first quarter of 2009 achieved a quarterly operating profit of approximately PLN 15.4m, record-breaking in the Group’s history,  nearly threefold higher than in the first quarter of the previous year. Sales revenue in this period amounted to PLN 135.2m. The depreciation of zloty brought about only a token net profit, which however did not affect the actually generated cash flows.

 

Key events:

 

 

 The Group generated PLN 15.4m of the operating profit in the first quarter of 2009, in comparison to PLN 5.7m in the parallel period of the previous year. This is a record-breaking quarterly result on operating activity in the Group’s history. The operating profit margin ratio increased from 4.0% to 11.4%;

 

-­ In recent quarters the ERGIS Group systematically implemented the strategy of decreasing operating costs. It resulted in high savings and in effect the level of the gross margin on sales in the first quarter of 2009 was as high as 24.2%, in comparison to 16.5% one year earlier. As a result, the gross profit on sales amounted to PLN 32.7m, in comparison to PLN 23.5m in the first quarter of 2008;

 

Despite the record-breaking operating result, the ERGIS Group achieved a slight net profit. It results exclusively from the depreciation of zloty to euro, which led to higher interest on loans denominated in this currency, and the Company recorded exchange rate losses in relation to these loans. These are unrealised exchange rate differences and as such they do not reflect the cash flows generated in the first quarter. The Group plans to refinance its liabilities denominated in EUR;

 

 

In the first quarter of 2009 the Group carried out the process of a partial conversion of the short-term debt, incurred in connection with the financing of the acquisition of German companies: MKF-Folien and Schimanski, into the long-term debt.

 

FINANCIAL RESULTS - DETAILS

Financial results of the ERGIS Group after the first quarter of 2009 are presented in the following table:

 

PLN '000

Q1 2008

Q1 2009

Change

Revenue

142,773

135,248

-5.0%

Gross profit on sales

Operating profit

 

23,540

5,735

 

32,696

15,433

 

+39.0%

+ 169.0%

Net profit

3,391

6

-

EBITDA

11,090

21,387

+92%

 

COMMENTS ON RESULTS FOR THE FIRST QUARTER OF 2009

Despite the fact that quantitatively the sales in the first quarter of 2009 was – in most groups of products – higher than in the first quarter of 2008, the Group recorded a slight decrease in the value of sales. This is the result of the ongoing economic slowdown, which affected the level of revenue in several groups of products, but above all it translated into a decrease of sale prices in many segments.

 

The analysis of operating segments indicates a distinct improvement of a situation both in Polish and in German companies. In Poland, the margin in the amount of PLN 19.3m and the operating profit of PLN 8.8m were generated (in the parallel period of 2008 PLN 13.3m and PLN 2.5m respectively), and in Germany the margin in the amount of PLN 13.4m and the operating profit of PLN 6.6m were realised (in the parallel period of 2008 PLN 10.2m and PLN 3.2m respectively).

 

Although the record-high operating profit was achieved in the first quarter of 2009 (PLN 15.4m), the Group earned only a token net profit. The majority of the generated net and gross profit was consumed by the exchange rate differences arising as a result of the depreciation of zloty, continuing in the first quarter. In most cases these are the unrealised exchange rate differences on the loans contracted in EUR for acquisition of companies, unconnected with the operating flows realised in the first quarter.

 

SIGNIFICANT SAVINGS

An appropriate response to the economic slowdown, manifested in the optimisation of costs and processes taking place in the ERGIS Group, brought about a considerable improvement in profitability. The gross profit on sales ratio, important for the Group’s activity, was on a much better level than in the previous periods. For the first quarter of 2009, the gross margin on sales amounted to as much as 24.2%, whereas in the parallel period of 2008 to 16.5%. Significant increase in EBITDA, by 92% in comparison to the first quarter of the previous year, was also recorded.

 

FINANCIAL SECURITY OF THE GROUP

In the first quarter of 2009 the Group carried out the process of a partial conversion of the short-term debt, incurred in connection with the financing of the acquisition of German companies: MKF-Folien and Schimanski, into the long-term debt.

 

Despite that the financial surplus generated by the ERGIS Group is entirely sufficient to satisfy current needs and to service the contracted loans, the Company plans to refinance a part of its liabilities by share issue (provided that there is an advantageous market situation) or by other means (e.g. mezzanine financing).

 

 

“We are satisfied with our operating results in the first quarter of 2009. This has been the best quarter in the Group’s history. The generated results have demonstrated that the synergy following from the acquisition of the German companies was considerably stronger than the adverse effects of the crisis. Ergis-Eurofilms, so far number two in this field, has also confirmed taking the leader position in stretch films manufacturing in Central and Eastern Europe. The reduction of operating costs, which we prepared in 2008 in response to appearing symptoms of the economic crisis, has also played a significant role. The fact that our net result was decreased by the unrealised exchange rate differences following from the depreciation of zloty, is of no greater significance, since it is of a one-off nature and unrelated to the realised financial flows,” comments Tadeusz Nowicki, the President of the Management Board of ERGIS-EUROFILMS S.A.

 

“Despite the economic slowdown we experience a high level of orders, which allows us to optimistically look into future quarters,” adds Tadeusz Nowicki.

 

ADDITIONAL INFORMATION

ERGIS Group is Central and Eastern Europe’s leading manufacturer of PVC products:  films, compounds, wallpapers, wall panelling, and windowsills. Its offer includes insulation films, roof films, films laminated with a layer of another film, paper, woven and non-woven fabric, films printed with flexographic technology, rigid packaging films (including films for packaging pharmaceuticals and laminates for the food industry based on PVC and PET films), 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 Group is Poland's 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 and PP 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