Gamma Holding posts 6% rise in net profit in 2003

• Dividend increased to EUR 1.90
• Despite difficult market conditions, Gamma Holding's net profit rose by 6% to EUR 34.1 million in 2003, from EUR 32.1 million in 2002.
• Turnover decreased by 5% to EUR 904 million in 2003, from EUR 954 million in 2002, mainly due to the negative effect of the US dollar.
• Earnings per share rose by 7% to EUR 4.56 (2002: EUR 4.26).
• Proposed dividend of EUR 1.90 (2002: EUR 1.80). The dividend is payable from 6 May 2004.

Results

In 2003 the turnover of Gamma Holding fell by 5% from EUR 954 million in 2002 to EUR 904 million. This includes a 3% positive effect of acquisitions. Exchange rate movements had a negative effect of 5%. On a comparable basis turnover declined by 3%.

The operating result decreased by 3% from EUR 72.7 million in 2002 to EUR 70.3 million in 2003. Exchange rate movements had a negative effect of 12%. The operating result increased by 2% as a result of acquisitions and by 1% as a result of lower restructuring costs. On a comparable basis the operating result increased by 6%.

Gamma Holding generates 49% of its turnover outside Europe (20% in the United States and 17% in Africa). The average exchange rate of the US dollar against the euro fell by 16% compared with 2002.

The deficit on the balance of financial income and expense improved from EUR 19.4 million in 2002 to EUR 15.5 million in 2003 due to a lower level of interest-bearing liabilities and a better result from investments. At 37.2%, the effective tax rate remained below the level of 2002 (38.9%). The improvement was mainly attributable to a lower natural tax rate.

The net profit in 2003 amounted to EUR 34.1 million, a 6% rise compared with 2002, when a net profit of EUR 32.1 million was recorded. Earnings per share increased by 7% from EUR 4.26 to EUR 4.56.

During the year under review the Gamma Group had an average of 9,313 employees (in 2002 an average of 9,374 employees). New consolidations had an upward effect of 229, partly offsetting a decrease of 290 resulting from other factors. The average number of employees within the Gamma Technologies sector was 3,371 in 2003, compared with 3,252 in 2002. The average number of employees within the Gamma Comfort & Style sector was 5,942, compared with 6,122 in 2002.

Investments and financing

Investments in tangible fixed assets in 2003 totalled EUR 35.9 million, 55% more than in 2002 (EUR 23.2 million).

The level of investment in 2003 was exceeded by depreciation. Depreciation amounted to EUR 38.9 million, compared with EUR 44.7 million in 2002.

Net investments in group companies totalled  EUR 17.3 million in 2003, compared with EUR 6.3 million in 2002.

Net working capital fell by EUR 5.8 million to EUR 277.7 million. Exchange rate movements reduced net working capital by EUR 11.0 million, while new acquisitions caused it to increase by EUR 10.8 million. On a comparable basis net working capital fell by EUR 5.6 million (2%).

The cash flow (the result after taxation and before depreciation and amortisation) amounted to EUR 74.4 million, compared with EUR 77.6 million in 2002. The measures taken to optimise the cash flow were continued in 2003. Total interest-bearing liabilities fell by EUR 31.3 million from EUR 275.5 million in 2002 to EUR 244.2 million in 2003.

Group equity amounted to EUR 212.3 million at the end of the year under review, compared with EUR 197.9 million in 2002. Group equity amounted to 31.2% of the balance sheet total at year-end 2003 (2002: 28.7 %).

Developments in 2003

Simplified structure

In order to be able to manage Gamma Holding more effectively, a more transparent organisational structure was introduced in 2003. Instead of three sectors, five segments and eight core activities, there are now two sectors and seven business units, which are managed directly by the Executive Board.

Acquisitions

The year under review saw a number of acquisitions, which mainly strengthened the position of the Gamma Technologies sector. For example, Filtration Technology in the United States was expanded with the acquisition of Crosible, and agreement was reached on the acquisition of the filter activities of Goodman. Crosible manufactures and distributes dry and wet filtration products that are used in, for instance, water-purification installations, the chemicals industry and the steel and cement industries. Goodman manufactures and sells filter cloths for wet filtration in the chemicals industry and for applications in water-purification installations.

In May the American company Green Belting Industries was added to Coating & Composite Technology. Green Belting is primarily active in the field of PTFE-coated glass fabrics.

Its products comprise tapes, belts and fabrics with specific thermal, chemical and electrical properties for applications in e.g. the insulation materials, food and packaging industries. In August the Ballistic Protection Group (BPG) was acquired from the German firm Burgmann. BPG, with facilities in Germany and Finland, specialises in the design and manufacture of protective armour, such as bullet-proof/stab-resistant clothing and ballistic protection solutions for land, air and sea transportation (armoured vehicles, helicopters, planes and naval vessels). Preparations were also made for the acquisition of the UK company Biscor. Biscor develops, manufactures and sells glass, aramide and other high-performance fabrics enhanced with fluorocarbon and silicone coatings.

Towards the end of the year preparations were made, within the Sailcloth Technology business unit, to acquire the D4 business of the Australian firm Fraser. This business develops, manufactures and sells pre-fabricated sail segments to sailmakers throughout the world. The segments, or ‘membranes', are based on composite materials.

In the Comfort & Style sector, the Sleep Care Fabrics business unit was strengthened with the acquisition of the Argentinian business Textiles y Diseños, a company specialising in the production of jacquard mattress ticking.

Production in growth markets

Gamma Holding is constantly exploring possibilities to improve its strategic cost position. Manufacturing at lower cost in growth markets makes it possible to operate more cost-effectively. The Sleep Care Fabrics business unit, for example, has boosted production of mattress ticking in the Czech Republic and is operating its own production unit in China. In addition, in the Belting Technology business unit preparations are under way to strengthen its position in China. In this way it is possible to manufacture locally throughout the world and to bring the cost structure into line with the geographical spread of the activities.

Gamma Technologies

Gamma Technologies, which accounts for 49% of Gamma Holding's turnover, comprises companies that are active within the Belting Technology, Filtration Technology, Coating & Composite Technology and Sailcloth Technology business units.

As industrial suppliers, the business units in this sector had to contend with generally difficult market conditions. Turnover fell by 4% from EUR 463 million to EUR 446 million. This includes a 5% positive effect of acquisitions. Exchange rate movements had a negative effect of 7%. On a comparable basis turnover fell by 2%.

The operating result decreased by 20% from EUR 30.1 million in 2002 to EUR 24.1 million in 2003, mainly due to exchange rate movements (-17%). This also includes a 5% positive effect of acquisitions and a 4% negative effect of higher restructuring costs. On a comparable basis the operating result fell by 4%.

Total restructuring costs within this sector amounted to EUR 1.7 million, compared with EUR 0.7 million in 2002. These costs related to Ames Europe.

At EUR 14.0 million, total investments were higher than in 2002 (EUR 11.9 million). These related to, among other things, the start-up of a production location in China (Belting Technology), the expansion of a coating machine (Coating & Composite Technology) and the replacement of, in particular, weaving machines in various business units.

Depreciation amounted to EUR 19.7 million, compared with EUR 21.5 million in 2002. This was due to the low level of investment in recent years and exchange rate movements.

The return on capital employed achieved by Sailcloth Technology was above the group target of 15%. The other business units in this sector failed to achieve this target.

Gamma Comfort & Style

The Gamma Comfort & Style sector generates 51% of Gamma Holding's turnover and comprises the Sleep Care Fabrics, Car Fabrics and Exotic Fabrics business units.

Turnover in the sector fell by 7% from EUR 491 million in 2002 to EUR 458 million in 2003. Exchange rate movements had a negative effect of 3%. On a comparable basis turnover fell by 4%.

Despite the negative effect of the US dollar against the euro, the operating result rose by 9% from EUR 42.6 million in 2002 to EUR 46.2 million in 2003. The operating result includes a 5% positive effect of lower restructuring costs. Exchange rate movements had a negative effect of 9%. On a comparable basis the operating result increased by 13%.

Total restructuring costs within this sector amounted to EUR 0.4 million, compared with EUR 2.4 million in 2002. These costs related to De Witte Lietaer and Delcar.

At EUR 21.9 million, total investments were higher than in 2002 (EUR 11.3 million). These related to, among other things, the expansion of knitting capacity in the United States and a new production unit in China (Sleep Care Fabrics), the setting-up of competence centres in Belgium and France (Car Fabrics) and the optimisation of production processes by means of new technologies (Exotic Fabrics). Depreciation amounted to EUR 19.2 million, compared with EUR 23.2 million in 2002. This was mainly due to the low level of investment in recent years and exchange rate movements.

The return on capital employed achieved by Car Fabrics fell short of the group target of 15%. Sleep Care Fabrics and Exotic Fabrics exceeded the target.

Outlook

The Gamma Comfort & Style sector has experienced a slow start to the year 2004. The Exotic Fabrics business unit has been hampered by the difficult political and economic situation in West Africa.

The Gamma Technologies sector is expected to develop favourably, partly as a result of efficiency measures taken and an expansion of the business activities.

In view of the above developments and the decline of the US dollar it is too early to make specific forecasts regarding Gamma Holding's results in 2004.

Executive Board, Gamma Holding N.V.

Helmond, 5 March 2004

Profile

Gamma Holding develops, manufactures and sells innovative, high-quality textile-based products throughout the world. It has 163 companies, including 43 production facilities, in 35 countries, with a total of 9,353 employees. Its headquarters are located in Helmond (The Netherlands) and its shares are listed on Euronext Amsterdam.

Gamma Holding comprises two sectors, Gamma Technologies and Gamma Comfort & Style. These are made up of seven business units specialising in belting, filtration, coatings and composites, and sailcloth technology, as well as sleep care, car and exotic fabrics. The company is a leading global player in its selected niche markets.