Ergis

Press Release

13 August 2007, 10:00

ERGIS-EUROFILMS S.A.: THE QUARTER OF THE GREAT MERGER

ERGIS-EUROFILMS S.A.: THE QUARTER OF THE GREAT MERGER

ERGIS-EUROFILMS, Central and Eastern Europe’s leading manufacturer of plastics products, had very good financial results in the first half of 2007. Revenue on sales surpassed PLN 188 million, meaning a 33.6% increase in comparison with the parallel period last year. Furthermore, operating profit for the period increased by more than 90%, reaching PLN 9.19 million, while the net profit increased by as much as 167%, to PLN 5.34 million. The first six months of 2007 were marked by intensive investments and the merger of Eurofilms and ERGIS. The potential of both companies will be clearly visible in the year’s second half.

Key events of the second quarter of 2007:

On June 29th, 2007 the takeover of ERGIS by Eurofilms was registered in the court. The company acquired, ERGIS S.A., was the parent company, holding 52.67% of stock in the share capital of the acquirer, Eurofilms S.A.

An investment was made into a production line for PET banding tapes with a value of PLN 14.5 million. Production on the line was commenced in July.

On April 5th, 2007, ERGIS legally gained control over Flexergis (formerly Baad) of Nowy Sącz.

Export sales in the second quarter went up by over 32%, while domestic sales increased by more than 25%.

 

COMMENTS TO THE RESULTS OF EUROFILMS

Detailed consolidated financial data are as follows:

PLN million

Q2/2007

Q2/2006

Change (%)

Q1-Q2 

2007

Q1-Q2 

2006

Change (%)

Net revenue on sales

98.26

78.26

+26.8

188.13

140.78

+33.6

Operating profit

5.17

3.16

+64

9.19

4.8

+91

Net profit

2.57

2.13

+21

5.34

2.0

+167

The situation in the film market in the first six months is viewed positively by the company. The economy was favourable. The period witnessed a dynamic increase in revenue – by almost 34%. The increase in sales was an effect of the takeover of Flexergis (formerly Baad) of Nowy Sącz in the first quarter, of the 2006 Oława Branch investments, and of an increase in the revenue of the Wąbrzeźno branch by 11%. Total export sales in the second quarter grew by more than 32%, while the domestic sales went up by over 25%. Foreign sales constitute 28.5% of total sales. The company has achieved very good dynamics for its net profit and operating profit. After two quarters of 2007, consolidated operating profit increased by more than 90%, and the net profit – by 167%.

These results do not include second quarter’s transaction of real property sale by the subsidiary company Remfol, which brought a profit of PLN 900,000, and last year’s financial assets disposal (the sale of Eurofilms shares by ERGIS in a public offering), which brought the company profit amounting to PLN 7 million. Gross profit, after eliminating a 2006 non-recurring event, increased by 63% in the second quarter of 2007. Ergis-Eurofilms profit calculated for an average diluted number of shares increased after two quarters, from PLN 0.15 to PLN 0.23. Consolidated net profit of the Ergis Capital Group adjusted to include the above transaction increased from PLN 0.15 to PLN 0.63 per share.

Compared to the parallel period of 2006, the second quarter of 2007 witnessed an increase in revenue on sales of stretch film (by more than 15%), while individual sale prices decreased by ca. 3%. The increase in revenue on sales results from introducing, in May 2006, a new production line and achieving sales on full production capacity of the three lines, which was the execution of the company’s stock exchange development strategy. The company noted lower revenue on sales of heat-shrinkable films, which is the result of a 10% decrease in sales. The company’s reoriented strategy focuses on producing a range of thinner films. The above was also influenced by a decrease in individual prices by 5%. At the same time, the increase in BOPP film sales was almost 26%.

EXECUTING THE STOCK EXCHANGE DEVELOPMENT STRATEGY

The company’s strategic goal is strengthening its position of one of Central and Eastern Europe’s largest plastics processing companies. The company continues to invest in widening its range of products through new production lines. Late this July, the company commenced manufacturing PET banding tapes. Furthermore, the company systematically works towards commencing the sales of stretch blown films early in the next year. Currently, a new production facility is under construction, and negotiations are underway with the suppliers of the production line. Including the related investments, the investment expenses are estimated at ca. PLN 15.7 million. The company does not publish its financial prognosis for the year. However, it deserves notice that ERGIS-EUROFILMS pro forma turnover during the entire year before the merger process was assessed at no less than PLN 390 million. The company also estimates that the margins will remain on a stable level. Third quarter results will be influenced by actions related to further operating consolidation and synergy effects from the merger of Eurofilms and Ergis.

THE MERGER OF ERGIS AND EUROFILMS

On June 29th, the court registered the merger of Eurofilms and Ergis, the change of name and the increase of share capital. As a result of the merger’s registration, the share capital of ERGIS-EUROFILMS S.A. was increased by the amount of PLN 18,769,609.80 through the issue of 31,282,683 E-series shares. These shares were distributed to previous shareholders of the acquired company, Ergis. The expected synergy effects:

- Improved utilisation of management potential

- Improved cost effectiveness

- Stronger position in negotiations of raw materials purchases

- Improved effectiveness of financial asset management

- Ability to actively participate in the market’s consolidation processes.

“The first half of the year was one of the crucial periods in the history of ERGIS and EUROFILMS. Despite a merger process, both companies can boast of a dynamic increase in sales and operating profit. At the same time, it is only in the second quarter that I expect the potential for the merged companies’ development to become fully evident. We intend to utilise the group’s potential to the fullest. We maintain our plans for new acquisitions before the end of the year,” said Tadeusz Nowicki, President of the Board of Directors of ERGIS-EUROFILMS S.A.

 

Additional information is available from:

Małgorzata Kot

ERGIS–EUROFILMS S.A.

phone: +48 0604 159 103, +48 0604 159 159

e-mail: kot@ergis.eu 

Magda Kołodziejczyk

M+G

phone: +48 (22) 625 71 40, +48 0501 16 88 07

e-mail: magda.kolodziejczyk@mplusg.com.pl 

About ERGIS-EUROFILMS S.A.

The issuer was created through this year’s merger of Eurofilms and its industry investor, ERGIS. The merged company, based on the potential of ERGIS, is Poland’s largest and one of Central and Eastern Europe’s largest 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, windowsills, expansion joint tapes, artificial leather, coated fabrics, tablecloths, and vinyl and paper wallpapers. Additionally, thanks to the potential of Eurofilms, the issuer 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 distributor of polypropylene BOPP film (used mainly for packaging manufacturing) and PET tapes (used for fastening medium heavy and heavy products and loads). The company’s production capacity reaches 27 thousand tons per year for stretch film, 1.4 thousand tons for PVC heat-shrinkable film and 4.8 thousand tons for PET tapes. Additional information is also available at www.ergis-eurofilms.eu.