Gamma Holding's annual results
- Turnover: EUR 744 million (2007: EUR 713 million)
- EBITA1 excluding restructuring expenses: EUR 38.4 million (2007: EUR 60.1 million)
- Net group result excluding restructuring expenses and impairments: EUR 14.0 million (2007: EUR 36.0 million)
- Restructuring expenses: EUR 32.1 million (2007: EUR 4.0 million), of which EUR 6.4 milllion (2007: nil)
impairment of property, plant and equipment
- Impairment of goodwill and acquired intangible assets EUR 22.6 million (2007: nil)
- Net group result: EUR -33.2 million (2007: EUR 33.0 million)
- Successful year for Exotic Fabrics
- Restructuring measures leading to annual cost savings of EUR 45 million from 2010
- Amended financing agreement until March 2010
- No distribution of dividend
The worldwide recession in 2008 had major repercussions for Gamma Holding, also in relation to the company's financing arrangements. The company was affected by a fall in demand from industrial customers and consumers, notably in the last quarter. In the first nine months of 2008 the group also had to contend with exchange rate fluctuations. These two developments in the world market meant that 2008 was a difficult year for Gamma Holding, one which - after the deduction of restructuring expenses and impairment of goodwill and acquired intangible assets - was concluded with a loss. As a consequence, Gamma Holding will not distribute a dividend for the year under review.
Cost cutting and debt reduction
In order to achieve a substantial reduction of production costs in Western Europe, Sleep Care Fabric's German site at Münchberg was closed in 2008. Meanwhile the last remaining production location - in Waregem, Belgium - is being cut back considerably.
In order to strengthen the financial position of Industrial Solutions, the workforce in this sector will also be reduced. At the same time, both production and fabrication will be further optimised and there will be a greater emphasis on marketing & sales and innovation.
To reduce debt, Gamma Holding is looking into the possibilities of selling organisational units. In that framework the process of selling Verseidag Ballistic Protection has now been resumed.
The aforementioned measures form part of a group programme of cost savings, divestments and restructurings. The implementation of this programme will mean the loss of approximately 10% of the jobs (about 800 employees) within the group, 275 of which have already been discharged in the fourth quarter of 2008. These discharges are expected to involve a once-only sum for restructuring expenses of EUR 34 million, of which EUR 23 million has already been accounted for as expenses in 2008. Ultimately the programme should yield, from 2010, annual savings of approximately EUR 45 million.
Amended financing
The decline in income also had an impact on the financing of the company. In December 2008, Gamma Holding agreed with the existing syndicate of banks that it would not be necessary to fulfil the existing covenants at the end of 2008 and that further discussions would be held on financing, based on the extra measures to be taken. On 18 February 2009, agreement was reached with the syndicate of banks on changes to the existing facilities until March 2010, thus bringing the total facilities available to the company to EUR 390 million (including EUR 36 million cash pool and guarantee facilities). For details of the agreed financing, please refer to the appendix.
In the opinion of the banking syndicate, Gamma Holding should attract risk-bearing capital to a minimum anount of EUR 45 million. Gamma Holding is therefore examining several scenarios for strengthening the group's risk-bearing capital or balancing the equity ratios. In that respect, Gamma Holding is examining the possibilities of and is holding talks on a rights issue, the issue of a subordinated loan and the realisation of a public-to-private transaction.
Turnover and results
For Gamma Holding, 2008 was a year in which turnover and income came under pressure. In 2008 group turnover was EUR 744 million (2007: EUR 713 million). This includes a net positive effect of 6% arising from acquisitions. Currency movements had, on average, an effect of -4% over the year. Organic growth of turnover was 2%.
Because of the sharp fall in demand and the weak dollar, EBITA1 of the group excluding restructuring expenses came to EUR 38.4 million (2007: EUR 60.1 million). Acquisitions had a net effect of -2% and currency movements a net effect of -6%. Organically, EBITA1 declined by 28%.
Restructuring expenses totalled EUR 32.1 million in 2008, of which EUR 6.4 milllion (2007: nil) impairment of property, plant and equipment, compared with EUR 4.0 million in 2007. EBITA1 totalled EUR 6.3 million (2007: EUR 56.1 million). Impairment of goodwill and acquired intangible assets came to EUR 22.6 million (2007: nil) and related to Belting and Sleep Care Fabrics. In the fourth quarter of 2008, the annual comparison of the book value with the higher of the value in use and the net market value took place, in accordance with the IFRS rules. Because of the change in market conditions this resulted in this impairment (non-cash).
The balance of financial income and expense deteriorated from EUR -10.6 million in 2007 to EUR -17.2 million in 2008. This was mainly due to an increase in debt. The effective tax rate was 1.9%, (2007: 31.5%). It should be noted here that the group result before taxation in 2008 was negative.
The net group result totalled EUR -33.2 million (2007: EUR 33.0 million). The net group result excluding restructuring expenses and impairment of goodwill and acquired intangible assets was EUR 14.0 million (2007: EUR 36.0 million).
Earnings per share came to EUR -4.61 (2007: € 4.39).
Industrial Solutions
The turnover of the Industrial Solutions sector showed organic growth in the first nine months of 2008. However, as a consequence of the credit crisis and the subsequent economic recession, the sector was faced, notably from the fourth quarter, with an unprecedented drop in demand. Moreover, the business units Belting and Filtration were troubled by the exchange rate of the dollar, which was very low for a part of 2008.
The turnover of Industrial Solutions increased by 6%, totalling EUR 448 million (2007: EUR 424 million). This includes an effect of 11% resulting from acquisitions and -4% arising from currency movements. Organically, turnover declined by 1%.
EBITA1 excluding restructuring expenses totalled EUR 15.8 million (2007: EUR 31.6 million). Acquisitions had an effect of -4% and currency movements an effect of -11%. Organically, EBITA1 declined by 35%.
Restructuring expenses came to EUR 4.1 million in the year under review, compared with EUR 2.9 million in 2007. They related to all the business units. EBITA1 came to EUR 11.7 million (2007: EUR 28.7 million).
Growth
As part of the build & buy strategy, Belting purchased at the beginning of 2008 the Danish company uni-chains® A/S, a producer of modular belts for sectors such as the automotive, the food, the paper and the pulp industry, and Filtration acquired the Canadian distributor Crosible Filtration Ltd. Furthermore, the marketing and sales organisations within the various business units were structured and expanded in order to be able to provide better and faster service to customers. For instance, Belting carried out expansion in the Far East, while in Filtration the process of integrating the various units under the joint new name Clear Edge Filtration was completed.
As regards product innovation, Belting developed ultrasync belts specifically for industrial applications requiring exact drive and synchronous conveying. The business unit also successfully marketed durable and hygienic modular belts for poultry processing. Specifically for the Asian market, Filtration developed compact filter applications for laser cutting machines. During the reporting period Coating & Composites again supplied coated fabric for numerous innovative roof structures, including those of the new stadia in Indonesia (Jakarta), Chile (Coquimbo) and South Africa (Johannesburg), as well as the airport in Alicante, Spain.
Operational excellence
On the theme of operational excellence, good progress was made by Belting on the integration of uni-chains®, the newly-acquired Danish producer of modular belts. This business unit is now operating under the new name of Ammeraal Beltech Modular. It has started, moreover, transferring some of its modular belt production operations from Denmark to the United States, where there were already production facilities. This should make Belting less dependent on the exchange rate of the dollar. To further reduce costs, Filtration has optimised production in Europe and the United States.
Lifestyle Fabrics
The turnover of the Lifestyle Fabrics sector rose by 3% from EUR 289 million in 2007 to EUR 296 million in 2008. Currency movements had an effect of -4%. Organically, turnover increased by 7%.
The turnover of Exotic Fabrics increased thanks to the differentiated brand strategy successfully launched two years ago. Vlisco, which operates in the more expensive market segment, benefited particularly from this, though the GTP and Uniwax brands also performed well. Furthermore, the recession was not felt in the African countries where this business unit markets its products.
Sales figures in Sleep Care Fabrics declined as a consequence of the collapse of the housing market in the United States and, more recently, in Europe too. Furthermore, the trend towards knitted mattress fabrics gave rise to over-capacity in woven fabrics, and margins came under pressure. The fall in sales in Sleep Care Fabrics make it necessary to take tough measures.
EBITA1 excluding restructuring expenses was EUR 22.6 million (2007: EUR 28.5 million). Currency movements did not have any effect. Organically, EBITA1 decreased by 21%.
Restructuring expenses in this sector totalled EUR 28.0 million, compared with EUR 1.1 million in 2007. EBITA1 came to EUR -5.4 million (2007: EUR 27.4 million).
Growth
In the Lifestyle Fabrics sector, Sleep Care Fabrics was able, in spite of the extremely difficult market conditions, to continue its policy of generating roughly a quarter of its turnover from new products. The business unit was again successful in launching innovative fabrics such as BugShield®, a washable, environment- and skin-friendly mattress fabric against bedbugs, and FireFly®, a mattress fabric that glows in the dark.
To strengthen its leading position, Exotic Fabrics further implemented its differentiated brand strategy in 2008. By doing so, the business unit is transforming itself from a producer of fabrics into a high-quality ethnic fashion business for the West African market. Following the successful introduction of flagship stores for the top brand Vlisco in Benin and Togo, it is seeking further suitable retail locations in other African countries. It also reaped the benefit of launching collections. The Uniwax brand doubled the number of new designs in the reporting period. The Woodin brand, which is targeted at a younger and more contemporary public, introduced in 2008 its first large autumn collection.
Operational excellence
The main intervention to reduce costs within Lifestyle Fabrics took place in Sleep Care Fabrics, namely the closure of the site in Münchberg (Germany) and the first moves towards closure of the factory in Waregem (Belgium). The production of mattress fabrics is now being transferred to the already existing facility in Turkey.
Discontinued operations
In order to increase focus and scale it its portfolio, Gamma Holding announced the divestments of Verseidag Ballistic Protection, part of the Coating & Composites business unit, and of the Sailcloth business unit in April 2008. Given the economic situation, it was decided in October 2008 to suspend these processes. The process of selling Verseidag Ballistic Protection has now been resumed.
Investments and financing
The net cash flow from operating activities came to EUR 37.3 million (2007: EUR 20.4 million).
Investments in property, plant and equipment totalled EUR 24.7 million (2007: EUR 33.5 million). On the other hand, there were divestments totalling EUR 6.0 million (2007: EUR 8.4 million), mainly related to the sale of real estate. Net investments totalled EUR 18.7 million (2007: EUR 25.1 million) and were thus 42% less than depreciation. In 2008 depreciation totalled EUR 32.4 million (2007: EUR 29.2 million).
Investments in subsidiaries were EUR 67.2 million in 2008, compared with EUR 1.3 million in 2007. This related to the acquisition of the Danish company uni-chains® A/S, a producer of modular belts, and the Canadian filter distribution company Crosible Filtration Ltd.
Trade working capital increased in the reporting period from EUR 204.8 million in 2007 to EUR 207.3 million in 2008, partly due to the acquisition of uni-chains®. As a percentage of turnover, trade working capital fell from 28.7% in 2007 to 27.9% in 2008. Trade working capital fell by EUR 4.5 million as a result of currency movements and increased by EUR 15.9 million as a result of acquisitions. Organically, trade working capital fell by EUR 8.9 million.
The balance of interest-bearing liabilities rose to EUR 285.5 million (2007: EUR 207.6 million). This includes a currency effect of EUR -3.6 million.
Total equity stood at EUR 142.0 million (2007: EUR 201.2 million). At year-end 2008 total equity as a percentage of the balance sheet total was 21.0% (year-end 2007: 31.8%).
Employees
In 2008 the total number of employees showed a net increase of 5% from 6,704 at year-end 2007 to 7,008 at year-end 2008.
The number of employees in Industrial Solutions at year-end 2008 was 3,714 (year-end 2007: 3,406). Acquisitions resulted in an increase of 379 employees and efficiency measures in a decrease of 71 employees.
The number of employees in the Lifestyle Fabrics sector at year-end 2008 was 3,294 (year-end 2007: 3,298). As a consequence of the closure of the German facility, the expansion of the Turkish facility and efficiency measures, there was a net decrease of 197 in the number of employees in Sleep Care Fabrics. The number of employees in Exotic Fabrics showed an increase of 193 as a result of a sharp rise in demand for all brands.
Outlook
In view of the current economic downturn in many markets in which Gamma Holding operates, market conditions will remain exceptionally difficult in 2009. By executing the group programme of cost savings, divestments and restructuring measures, Gamma Holding expects to be able to weather the current recession.
Executive Board of Gamma Holding N.V.
Helmond, 20 February 2009
This press release is based on the financial statements prepared by the Executive Board. The financial statements will be submitted to the General Meeting of Shareholders of 23 April 2009 for adoption.
Appendices
Conditions governing amended financing agreement
Consolidated statement of changes in equity
Consolidated statement of cash flows
1 Group result before income tax, interest and amortisation/impairment of goodwill
and acquired intangible assets
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