Ergis

Press Release

05 November 2010, 15:20

THE ERGIS GROUP AFTER Q3 2010: STRONG INCREASE IN SALES DUE TO DYNAMICS OF THE POLISH MARKET

The Ergis Group recorded revenue from sales after the third quarter of 2010 in the amount of PLN 448.43 million, which represents an increase by more than 6.8% as compared to the same period of 2009. Further, net profit in that period amounted to over PLN 11.28 million.

Key events of Q3 2010:

- Revenue of the ERGIS Group after three quarters of 2010 increased by more than 6.8%, and amounted to PLN 448.43 million. The level of sales of the Group in Q3 2010 alone increased in relation to the level achieved in the corresponding period of 2009 by as much as 14%, additionally at the lower EUR exchange rate, which mainly resulted from a strong increase in the revenue of the Polish company of the Group: Ergis-Eurofilms S.A.

­- In total, after three quarters of 2010, the sales on the Polish market grew to over PLN 220.22 million, against more than PLN 192.72 million in the previous year, which means an increase by 14.27%, and results from a visible strengthening of the Group’s position among domestic customers. On the other hand, sales on foreign markets amounted to PLN 228.2 million against PLN 226.99 million in the corresponding period of the previous year, despite of a decrease in the EUR average exchange rate by about 10% in this period.

­- The Management Board of Ergis-Eurofilms S.A. has decided to pursue the project of creating a new packaging film manufacturing plant in Wąbrzeźno. The value of the investment is estimated at approx. PLN 22 million. The first stage involves the currently commenced construction of a new production hall at the Wąbrzeźno Plant of Ergis-Eurofilms S.A., which shall have been completed on 1 May the next year. Two months later, production of packaging films will begin. The Company considers relocation of some means of rigid film production from one of the German companies of the Group, MKF-Folien GmbH.

FINANCIAL RESULTS – DETAILS

Financial results of the ERGIS Group after three quarters of 2010 are presented in the table below:

PLN '000

Q1-Q3 2009

Q1-Q3 2010

Change

Revenue

419,719

448,430

+6.84%

Operating profit

32,932

15,820

-52.0%

EBITDA

50,412

31,096

-38.4%

Net profit

18,084

11,273

-37.7%

The 2009 results, against which this year results are compared, were record-breaking, both as regards the margin achieved, as well as EBITDA and operating profit.

In its notes to the 2009 results, the Company advised of the very high unlikelihood of repeating such results in successive years.

DETAILED SALES OVERVIEW

In the third quarter of 2010, the macroeconomic environment and immediate market environment remained the factors negatively affecting the Group’s results. In this period, the prices of basic raw materials have been higher than in the second quarter of 2010. In connection with the market situation, the Group continued its existing strategy of developing sales in anticipation of the reversal of the current adverse trends in the prices of strategic raw materials.

The Company managed to fulfil the strategic objective of the third quarter of 2010, i.e. a significant increase in sales. The value of sales in the third quarter of 2010 increased in comparison to the analogous period of 2009 by 14%, with the EUR exchange rate being lower (about PLN 4.00 in Q3 of 2010 compared to PLN 4.16 in Q3 of 2009). Cumulative sales of the Group were also higher than last year’s – by 6.8%. It was primarily Ergis-Eurofilms S.A., that was responsible for the growth in sales. Quarterly sales dynamics in that Company amounted to as much as 21%, and cumulatively – to 15%.

High dynamics of sales of the stretch film is worth noting – although it partially results from increased prices of the basic raw material, it also reflects quantitative increase in sales by 17%. As far as PET types are concerned, there was recorded a quantitative increase in sales by nearly 33%. High sales dynamics was also seen in printed packaging, resulting from investments made at Flexergis in 2008-2009. The market of PVC compounds for cable industry has been gradually recovering. The sales of moulded products continues to be unsatisfactory. Negative dynamics of sales of laminates and PET films is partially apparent, as it is affected by a decrease in the EUR exchange rate. In case of PET films, the value of sales in EUR did not decrease in relation to the previous period.

DETAILED PROFITABILITY OVERVIEW

The increase in sales experienced by Ergis-Eurofilms S.A. translated into good results of the Company. EBITDA level amounted to PLN 7.68 million in Q3 2010, a value that is very close to that achieved in Q3 2009 (PLN 7.67 million), which was historically the best quarter in terms of EBITDA. Since the profit level was achieved by an increase in sales, margin ratios remain slightly lower than those from the previous year.

The Management Board of the Company believes however that Ergis-Eurofilms S.A. has created the foundations to enhance profitability and the volume of profit in the future, as market conditions, and primarily the raw materials situation, are likely to improve.

In Q3, the result of the Group was still negatively affected by the return on sales of film and rigid laminates for food packaging. Despite of the fact that sales revenues increased by 3%, the situation related to raw material costs brought about an adverse effect on profitability.

In spite of the implemented cost reduction and efforts to raise product prices, the companies producing them showed monthly losses several times, and the September improvement in results was not sufficient to compensate for those losses.

In total, in the third quarter of 2010, the Group recorded gross profit of PLN 5.15 million compared to PLN 10.19 million in the third quarter of 2009. At Ergis-Eurofilms S.A., gross profit amounted to PLN 5.49 million compared to PLN 6.98 million in the third quarter of 2009.

“Although this year we are comparing the results to the record-breaking 2009, I believe that the results of the Group – taking into consideration an uneasy situation on some markets – are satisfying, and the increase in sales reflects our growing market position. We are creating strong foundations for increasing earning capacity and profit of the Ergis Group in future. At the same time, we keep on looking for new sources for building the value of the Group. Consequently, we decided to construct a new manufacturing plant for the production of packaging films in Wąbrzeźno, and to leverage competitive advantages of the Polish labour market, we are considering the transfer of some means of rigid film production from one of our German companies - MKF-Folien GmbH. I believe that this project will additionally improve a strong international position of Ergis-Eurofilms,” said Tadeusz Nowicki, President of ERGIS-EUROFILMS Management Board.

ADDITIONAL INFORMATION

ERGIS Group is Central and Eastern Europe's leading manufacturer 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 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 manufactures also packaging film for food industry (laminates, single layer films, rigid films, flexible films, ‘skin’ films), as well as flexible packaging films and multi-layer laminates.

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