Gamma Holding: profit in first half year 17.5 million

• lower than first half of 2001
• higher than second half of 2001

Although the results in the first half of the year were below the level of the corresponding period of 2001, they were better than in the second half of 2001. The net profit of Gamma Holding NV in the first half of the year amounted to EUR 17.5 million, 5% down on the corresponding period of 2001. Turnover increased by 5% to EUR 495.5 million, which includes an 8% positive effect from acquistions.

Compared with the first half of 2001, Gamma Holding had to contend with difficult economic conditions. The level of business activity declined in a number of market segments that are important to the company. Despite these adverse market conditions, the segments Specialties, Industrial Applications and Exotic Fabrics posted favourable results, with an upturn in both turnover and operating result. The results of the Automotive and Process and Conveyor Belts segments were under pressure.

Compared with the first half of 2001, the operating result fell by 2% to EUR 38.5 million. Acquisitions had a 3% positive effect on the operating result, while currency movements had a 4% negative effect.

The measures initiated in mid-2001 to optimise the cash flow were continued in the first half of 2002. A reduction in working capital and a relatively low level of investment reduced interest-bearing debt by EUR 46.8 million from EUR 357.1 million at year-end 2001 to EUR 310.3 million at the end of the period under review (end of the first half of 2001: EUR 336.8 million). As a result, the interest coverage ratio rose from 3.4 over the year 2001 to 4.4 over the period under review.

Despite the economic climate and increased competition, the Process and Conveyor Belts segment was able to maintain its turnover, albeit with a lower margin due to price pressure and a shift in the product mix. Demand in the United States in particular was down, which had an adverse effect on manufacturing capacity utilisation in that country. In other regions where the operating result was under pressure, such as Germany and Austria, restructuring measures have been implemented. In the first half of the year the international distribution network was further expanded through the acquisition of Foulds, a UK-based distributor with an annual turnover of approximately EUR 5 million. Foulds has a strong market position in the food industry.

Thanks in part to the acquisition of Madison Filter as of 1 December 2001, the Specialties segment (screen and filter technology, coatings, sailcloth and industrial woven and knitted fabrics) was able to further strengthen and expand its good market positions. Techfab/IFC benefited from higher sales of filter products to the Far East. A start has been made on further optimising the companies that are active in the market for filter products (Techfab/IFC and Madison Filter). The positive developments at Indutex were mainly attributable to the increased sales of anti-ballistic materials and billboards. Dimension Polyant's operating result was stable compared to the first half of 2001. At Ames Europe, structural measures have been taken to improve the operating result. As part of these measures, the production facility in the United Kingdom was closed.

In the first half of 2002 the Automotive segment again had to contend with difficult market conditions in the automobile industry. Lower volumes and price pressure resulted in a sharp decline in turnover. In addition, the company has had to contend with an imbalance in the utilisation of the available production capacity. Measures designed to cut costs have been taken. In this context, the number of employees has been reduced by about 60, and measures to reduce the workforce further have been initiated.

The Industrial Applications segment had a good first half of the year, with widely divergent trends in the various regions. In Europe, turnover and operating result were under pressure. On the other hand there were positive developments in Australia and in particular the United States, where the operating result improved on the back of an increase in turnover. The cost-saving measures introduced in Europe will have a lasting positive effect on the results.

Thanks in part to a further strengthening of the African distribution network, the Exotic Fabrics segment succeeded in improving turnover and operating result. The negative effect of the economic downturn in Ghana was offset by improved results in the Ivory Coast. A programme of cost-cutting measures has been started in Ghana.

Despite the acquisition of Madison Filter, interest charges decreased thanks to a reduction in interest-bearing debt and a lower average interest rate. However, this was offset by a decline in income from other investments, causing the deficit on the balance of financial income and expense to remain virtually unchanged.

At 38.9%, the effective tax rate was slightly below last year's level (2001: 39.0%).

Investments in tangible fixed assets amounted to EUR 8.8 million (2001: EUR 23.7 million).

At the end of the period under review the number of employees totalled 9,354. Compared with the first half of 2001, acquisitions increased the number of employees by 786. The implementation of cost-cutting measures led to a reduction in the number of employees by 389. At year-end 2001 the number of employees totalled 9,612.

In July 2002 four and five-year credit facilities with a total value of EUR 300 million were arranged with a syndicate of banks. The loan will be used to finance Gamma Holding's intended organic growth combined with additional acquisitions and to refinance existing (short-term) lines of credit.

Taking advantage of a change in the law in Germany, our stake in Verseidag AG, the company we acquired in 1999, was increased by 1.2% to 100% at the beginning of August.  

Outlook

Assuming that the economic climate does not deteriorate further, the operating result for the whole of the year is expected to be roughly the same as in 2001.

Board of Managing Directors, Gamma Holding NV

Helmond, 6 September 2002