Ergis

Press Release

28 August 2009, 13:45

THE ERGIS GROUP REMAINS STRONG IN THE FACE OF THE CRISIS: RECORD OPERATING RESULTS IN THE 1ST HALF OF 2009

The ERGIS Group in the first half of 2009 achieved a gross sales of PLN 59.9m (an increase by 26.4%), a record-breaking result in the Group’s history, and operating profit of approximately PLN 24m, 140% higher than in the first half of the previous year. Sales revenue in that period amounted to PLN 277m, and net profit amounted to PLN 7.9m.

Key events of the first half of the year:

- The Group generated nearly PLN 24m of operating profit in the first half of 2009, in comparison to nearly PLN 5.7m in the parallel period of the previous year, amounting to a 141% increase. This is a record-breaking semi-annual result on operating activity fro the Group. The operating profit margin ratio increased from 3.4% to 8.6%.

­- The ERGIS Group systematically implements the strategy of decreasing operating costs. This resulted in high savings, and as a result, the gross profit on sales amounted to PLN 59.9m, in comparison to PLN 47.4m in the first half of 2008.

- The clear increase of the operating result stems on one hand from the actions taken toward decreasing the cost of operations and improving efficiency, including actions related to the achieved synergies, and on the other hand from the weakening of the zloty. During that period the Group recorded a predominance of export over import, which resulted in a positive influence on profitability.

- In the first half of the year the Group carried out an investment in Flexergis – another flexographic printing press was installed in the newly-constructed facility. The investments conducted will allow the Group to further reduce production costs and increase the production capacity of Flexergis by 25%.

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 half of 2009 are presented in the table below:

PLN ‘000

H1 2008

H1 2009

Change

Revenue

292,033

277,751

-4.9%

Gross profit on sales

47,380

59,907

26.4%

Operating profit

9,996

24,095

141%

Net profit

8,252

7,893

-4.3%

EBITDA

21,052

35,967

70.8%

In comparison with the parallel period of 2008, the Group’s revenue was 4.9% lower in the first half of 2009. The slight decrease in turnover resulted mainly from a decrease in raw material prices and the corresponding decrease of transaction prices for a portion of the product range. Quantitatively, sales remained at a level close to the previous year (2% lower than in the corresponding period of 2008).

The first half of 2009 set the Group’s record in terms of operating results – operating profit values were 141% higher than in the first half of 2008.

The considerable increase of financial expenses in the 1st half of 2009 resulted from the high euro exchange rate, amounting to higher interest on loans denominated in this currency, and above all unrealised exchange differences, resulting from the depreciation of the zloty on the valuation of long-term foreign currency loans. These loans were taken for the purpose of acquiring the two German companies which have become a part of the ERGIS Group. This situation is therefore a temporary side-effect of the macroeconomic situation, with a very limited influence on the current cash flows within the Group.

ACTIONS TAKEN IN THE FIRST HALF OF THE YEAR

In the first half of the year, the ERGIS Group developed the production infrastructure of Flexergis Sp. z o.o. by installing a new flexographic printing press - W&H Miraflex CM – and constructing a new production facility. The investment in Flexergis is the Group’s most important investment in 2009; it is expected to allow Flexergis to increase its production capacity by 25%, as well as reduce production costs. It will also enable the company to fulfil orders it has previously been unable to perform due to the technological limitations of the older equipment.

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 a long-term debt.

THE GROUP’S OUTLOOK AFTER THE 1ST HALF OF 2009

The Group’s financial situation is good. The EBITDA level, one of the main factors in estimating the Group’s financial security, grew from PLN 21.1m for the first half of 2008 to PLN 35,9m for the first half of 2009. As a result the operating cash flows improved from PLN 4.5m in the first half of 2008 to PLN 18.7m for the first half of 2009. This situation enables the Group to continue to widely benefit from discounts offered by its suppliers and to correspondingly lower its costs.

The Group will focus on the development of two primary areas of its activity: PVC films and stretch films. It will pursue further expansion in the PET tape market, where the Group made its debut in 2007 and has continued to enhance its position since.

“Our results confirm the theory that the crisis favours those Polish companies who react appropriately to the market situation – and this includes the ERGIS Group. In the first half of the year we have indeed strengthened our position as the leader in the manufacture of stretch films in Central and Eastern Europe. Due to our proper reaction to the symptoms of the economic slowdown, we enjoyed the Company’s all-time highest semi-annual operating profit. At the same time, we are still considering ways of refinancing the loans we have used for the expansion into the German market. One of the possibilities is mezzanine financing. However, the recent favourable developments in the stock exchange make an issue of shares or bonds more and more likely,” comments Tadeusz Nowicki, the President of the Management Board of ERGIS-EUROFILMS S.A.

ADDITIONAL INFORMATION

ERGIS Group is Poland’s largest and Central and Eastern Europe’s leading manufacturer of PVC products: films, compounds, wallpapers, wall panelling, and windowsills. Its 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 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). The Group is also a manufacturer of food packaging films (laminates, single-layer films, rigid films, and elastic and skin films), as well as flexible packaging and multi-layer laminates.

Additional information about the Group is also available at www.ergis-eurofilms.eu