Ergis

Press Release

13 May 2011, 15:34

THE ERGIS GROUP AFTER Q1 2011: DYNAMIC SALES GROWTH

The ERGIS Group recorded in the first quarter of 2011 a marked increase in sales by more than 14% to PLN 154.5 million. The Group generated profits at all levels of the profit and loss account, despite demanding market conditions which primarily included a strong increase in raw materials prices.  

Key events:

 Revenue of the ERGIS Group after the first quarter of 2011 increased by more than 14%, and amounted to PLN 154.5 million. It was mainly Ergis-Eurofilms S.A. that was responsible for the growth in sales.

­   Domestic sales in the first quarter of 2011 grew by 16.6% to PLN 71.22 million, as compared to the result of the analogous period of 2010. A negative trend from previous quarters was reversed by the Group’s foreign sales which increased after the first three months of 2011 by 12.5% to PLN 83.32 million, as compared to the same period of 2010.

­   The Group’s financial result for the first quarter of 2011 was adversely affected by a continued increase in the prices of key raw materials. Although market conditions were very demanding, the Group generated a significant financial result at all levels.

­   The Group pursues the project of creating a new PVC rigid films manufacturing plant in Wąbrzeźno. The value of the investment is estimated at approx. PLN 22 million. The investment may have a significant beneficial effect on the Group’s future results, as the production means will be relocated and concentrated on one site.

­   The Group also performs work to increase its production capacity in the stretch film segment in the Oława plant. An arrangement with PARP (Polish Agency for Enterprise Development) was reached as to updating an agreement regarding co-financing of an investment under the “Innovative Economy" programme, which resulted in signing, on 5 May 2011, as announced in current report No. 14/2011, an agreement on supply of another line for the production of stretch film, which will increase annual production capacity for that product to 44,000 tonnes.

FINANCIAL RESULTS - DETAILS 

Financial results of the ERGIS Group after the first quarter of 2011 are presented in the following table:

 

PLN '000 

Q1 2010 

Q1 2011 

Change 

Revenue

135,164

154,555

+14.3%

Operating profit

6,737

3,655

-45.8%

EBITDA

11,985

8,551

-28.7%

Net profit

7,612

1,889

-75.3%

MARKET OVERVIEW

 In the first quarter of 2011, the macroeconomic environment and immediate market environment remained the factors adversely affecting the Group’s results. The average prices of basic raw materials were higher than in 2010, i.e.:

-      PVC – prices higher by 19%

-      FDO/DINP – prices higher by 61%/ 75%

-      PET – prices higher by 45%

-      LLDPE – prices higher by 11%

 

In the period Q4 2010/Q1 2011, the price increases were as follows:

–      PVC                + 4.3%

–      FDO/DINP     + 1.3%/ 3.5%

–      PET                + 18.4%

–      LLDPE           + 11%

In the first quarter of 2011, the Group continued to observe difficulties in transferring raw materials price increases onto the prices of products despite a slight improvement of the situation at the end of 2010.

The disadvantageous trend of growth in prices of raw materials and semi-finished products used for manufacturing of PET films and laminates used for food with a simultaneous reduction in market prices of finished products has led to a fall in profitability of the German companies. A difficult situation on the PET market continues and it is hard to foresee how long the crisis on that market will endure. Based on observations of long-term trends in the past, an upturn should be expected.

DETAILED SALES OVERVIEW

The ERGIS Group continued to pursue the strategy of developing sales in anticipation of the improvement in the situation of prices of strategic raw materials. In consequence, last year the Group, for the first time in its history, has recorded sales revenue amounting to nearly PLN 600 million. In the first quarter of 2011, the Group’s dynamic sales growth was maintained.

The value of sales in the first quarter of 2011 increased by 14.3% relative to the value in the analogous period of 2010, with the average EUR exchange rate being comparable. It was primarily Ergis-Eurofilms S.A. that was responsible for the growth in sales. Quarterly sales dynamics in the Company accounted for 11.7%.

Domestic sales in the first quarter of 2011 increased by 16.6% to PLN 71.22% million. A negative trend from previous quarters was reversed by the Group’s foreign sales which increased after the first three months of 2011 by 12.5% to PLN 83.32 million.

It is noteworthy to mention a high dynamics of PET tapes sales. The output was increased without any investment outlays, and sales grew by 12%. It is also worth noting that high sales dynamics was also seen in printed packaging (quantitatively 11.5%), resulting from investments made at Flexergis in 2008-2009. The market of PVC compounds for cable industry has been gradually recovering (quantitative growth by 5%). The sales of stretch films higher by 12% follow from increased sale prices which compensate the growth in prices of raw materials.

DETAILED PROFITABILITY OVERVIEW

Increase in sales recorded by Ergis-Eurofilms S.A. contributed to generating profits by the Group, despite adverse market factors. The Group’s financial result for the first quarter of 2011 was significantly affected by an increase in the prices of raw materials.


In that period the prices of all key raw materials (primarily PET) grew, therefore the performance of German companies could not have been improved. Further growth in prices of PVC ad FDO also turned out to be acute, which was reflected in a decrease in profitability of products manufactured from those materials (compounds, extruded products, some film groups).

The Group’s sale growth was limited to a certain extent by a decrease in profit resulting from lower profitability. However, it was not possible to transfer further increase in raw materials prices onto the prices of products in a short term. Therefore EBITDA value for the Group decreased in the first quarter of 2011 to PLN 8.5 million relative to PLN 11.9 million achieved in the first quarter of 2010. The decrease primarily referred to Ergis-Eurofilms S.A. (from PLN 11.05 million in Q1 2010 to PLN 8.24 million in Q1 2011).

The figures of gross and net profit for the first quarter of 2011 are unsatisfactory as compared to the analogous period of 2010, which partially follows from a deterioration of the operating result, but also from high unrealised foreign exchange gains which were related to a significant decrease in the euro exchange rate (gains of PLN 3.9 million), with simultaneous stability of that exchange rate in Q1 2011 (unrealised foreign exchange gains amounted to PLN 59,000).

 

 “The first quarter of 2011 brought another wave of increase in prices of raw materials. In those adverse market conditions, given an unsuccessful strive for higher margins reduced in previous quarters, it is clear that actions leading to strengthening our market position and higher sales brought effects. We also seek to improve efficiency. Stock market investors are already aware of our plans regarding a new manufacturing plant for the production of PVC rigid films and launching another stretch films production line in Oława, as previously announced. I am convinced that they will bring a positive effect on our future results. I also expect that the adverse trend in raw materials prices will start changing to our benefit,” commented Tadeusz Nowicki, President of the Management Board of ERGIS-EUROFILMS.

ADDITIONAL INFORMATION  

ERGIS Group is Poland’s largest as well as 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