Half-year results Gamma Holding

* Turnover: EUR 326 million (half year 2008: EUR 375 million) * EBITDA (1) excluding restructuring expenses: EUR 22.2 million (half year 2008: EUR 43.8 million) * Net group result excluding restructuring expenses and impairment: EUR -11.8 million (half year 2008: EUR 15.9 million) * Restructuring expenses: EUR 9.8 million (half year 2008: EUR 0.4 million) * Impairment: EUR 32.9 million (half year 2008: nil) * The net group result: EUR -53.3 million (half year 2008: EUR 15.6 million) * Operational personnel and other operating expenses EUR 13.2 million lower * Improved financing agreement Half-year report of the Executive Board Trading conditions remained exceptionally difficult for Gamma Holding in the first six months of 2009. In that context the programme of cost savings and restructurings is being accelerated. Compared with the first six months of 2008, operational personnel and other operating expenses were EUR 13.2 million lower in spite of increased expenditure at Exotic Fabrics. Group turnover in the first half of 2009 came to EUR 326 million (half year 2008: EUR 375 million). This includes a positive effect of EUR 2.5 million arising from currency movements. EBITDA1 of the group excluding restructuring expenses was EUR 22.2 million (half year 2008: EUR 43.8 million). Currency movements had a positive effect of EUR 2.4 million. The lower EBITDA was due to the decline in turnover and the consequent under-utilisation of capacity in the factories. Furthermore, added value decreased as a consequence of downward price pressure and the reduction of inventories. The net group result excluding restructuring expenses and impairment came to EUR -11.8 million (half year 2008: EUR 15.9 million). Restructuring expenses in the first six months totalled EUR 9.8 million (half year 2008: EUR 0.4 million). As a result of the deterioration in market conditions, the test against the value-in-use calculations resulted in an impairment of intangible assets and property, plant and equipment of EUR 32.9 million at Filtration and Coating & Composites (half year 2008: nil). The net group result came to EUR -53.3 million (half year 2008: EUR 15.6 million), mainly due to the lower EBITDA[1] and an impairment of intangible assets and property, plant and equipment. Industrial Solutions The turnover of Industrial Solutions in the first six months of 2009 came to EUR 185 million (half year 2008: EUR 231 million). Currency movements had a positive effect of EUR 4.6 million. EBITDA1 excluding restructuring expenses of the sector totalled EUR 4.1 million (half year 2008: EUR 24.3 million). Currency movements had a positive effect of EUR 2.4 million. Turnover of Belting came to EUR 112 million (half year 2008: EUR 135 million). Worldwide, customers postponed orders, while major projects at Original Equipment Manufacturers (OEMs) suffered delays. This applied to all types of belting, especially in the construction and textile sectors and in the chemical, metalworking, woodworking and automobile industries. The replacement market was also badly affected by the recession, mainly because customers sought to save on maintenance expenses. The food industry, on the other hand, was less sensitive to the recession. The business unit developed for this sector a new generation of modular radius belts for resting, cooling and freezing of food. In addition, a flexible squeezing belt was launched on the market which is particularly suitable for separation machines used for meat and poultry. Turnover of Filtration amounted to EUR 46 million (half year 2008: EUR 58 million). There was falling demand for filtration products throughout the world, particularly in mining, the chemical and the automobile industries. OEMs operating in various sectors of industry deferred their spending. Sales to the food industry remained stable, however. Filtration launched several new and improved products, including thermoplastic-welded, seamless and hence non-leaking filter bags, metal-ribbed belting for the production of corrugated board and specially sewed filtration belts for horizontal and rotating vacuum filters. Turnover of Coating & Composites came to EUR 27 million (half year 2008: EUR 38 million). Because of cutbacks on advertising budgets there was a sharp fall in demand, notably for seemee® (printable media fabric). Turnover of duraskin® (tent and roof structure fabric) also lagged behind, though this was partly offset by the supplying of coated fabric for the 2010 World Cup football tournament in South Africa. In that connection more than 60,000 m2 of fabric was supplied for the stadium roofing of 'Soccer City' in Johannesburg, while both the roof structure and the frontage were provided for 'Green Point' in Cape Town. Coating & Composites previously supplied the roof structure for the new Rhein Neckar Arena, the stadium of the successful German football club Hoffenheim. Lifestyle Fabrics Turnover of Lifestyle Fabrics totalled EUR 141 million (half year 2008: EUR 144 million). Currency movements had a negative effect of EUR 2.1 million. EBITDA(1) excluding restructuring expenses came to EUR 18.6 million (half year 2008: EUR 20.3 million). Currency movements did not have any effect. Turnover of Sleep Care Fabrics amounted to EUR 61 million (half year 2008: EUR 70 million). Mattress manufacturers produced less in the first six months, while existing stocks were further reduced. The U.S. market, however, showed a slight recovery. The business unit was again able to introduce a new product at Interzum, the international furniture and interiors industry show in Cologne: Purotex®, a patented, revolutionary technology for creating a healthy and clean sleeping environment. This new mattress fabric contains natural, probiotic microflora which neutralise bed lice allergens and inhibit the development of harmful bacteria. The business unit received for this ecological innovation an Interzum Award for Intelligent Material & Design in the top category 'Best of the Best'. Exotic Fabrics held its own. The business unit's turnover increased by 8% in the first six months from EUR 74 million in 2008 to EUR 80 million in 2009 as a result of extra sales efforts. This growth was achieved in the first quarter. Turnover in the second quarter was at last year's level. The top brand Vlisco opened a third flagship store in Abidjan (Côte d'Ivoire) and successfully launched its new collection 'Éclat de Nature'. There was also success in Ghana, where a special Obama design was made for a customer to mark the state visit by the U.S. President on 12 July 2009. Discontinued Operations Turnover of Discontinued Operations amounted to EUR 36 million (half year 2008: EUR 40 million). Compared with other units within the group, Verseidag Ballistic Protection was less affected by the recession. Turnover increased in the first six months, partly thanks to the supplying of bullet-proof material to European and U.S. army and police forces and armouring for military vehicles. The unit also developed automatic weapon protection for use on ships. This is a special protective system along the ship rails, including mobile protective shields at the gun turret, to protect ships against close-range threats. The German navy has now equiped various ships with this new system. Sailcloth had to contend with a slow start to the sailing season. Moreover, notably in Europe, the production of sailing yachts was postponed and there was a worldwide sharp decline in the wind surfing segment. However, demand for the top segment membrane sails remained high in comparison with last year. Sailcloth is working on new products in response to the economic downturn. For instance, the business unit launched at an event for super yachts D4® sailcloth with Dyneema®, the world's strongest, most lightweight and lasting yarn. Furthermore, more sail-makers are prepared to affix the brand name DP (Dimension-Polyant) to their sails, which will increase the brand familiarity. In addition, the first sails from the new production location in Sri Lanka are to be supplied this year. Financial information The balance of financial income and expense rose to EUR -17.5 million (half year 2008: EUR -7.1 million) as a consequence of higher (re-)financing expenses of EUR -6.1 million, higher interest margins and a slightly higher balance of interest-bearing liabilities. The balance of interest-bearing liabilities at the end of the reporting period increased to EUR 312.6 million (half year 2008: EUR 306.2 million). The first half of the year includes a negative currency effect of EUR 2.0 million due to changes in exchange rates. The share in results of associates was nil (half year 2008: nil). The effective tax rate fell to nil on a loss before income tax (half year 2008: 30.3% on a gain before income tax), mainly because most of the losses are incurred in countries where they can no longer be valued. Net investments in property, plant and equipment in the first half of 2009 totalled EUR 7.9 million (half year 2008: EUR 10.8 million) and were mainly in Belting, Filtration and Exotic Fabrics. They were thus significantly below the level of depreciation of EUR 15.2 million (half year 2008: EUR 16.5 million). Net working capital as a percentage of turnover came to 31.5% (half year 2008: 31.0%). This increase was caused by slight pressure on the terms of payment of debtors and a decline in accounts payable. This is partly due to the reduced coverage provided by credit insurers, which results in pressure on payments. Cost savings and restructurings The programme of further cost savings and restructurings announced on 20 February 2009 is being accelerated throughout the group. In 2009 this will yield cost savings of approximately EUR 30 million. Ultimately the programme should yield annual savings of approximately EUR 45 million from 2010. As a consequence of the measures that have been taken, 378 employees at Industrial Solutions and 282 employees at Sleep Care Fabrics left the group in the first six months of 2009. Expansion resulted in an increase of 62 in the number of employees at Sleep Care Fabrics in Turkey and Mexico and 72 at Exotic Fabrics, mainly in Africa. The number of temporary employees through agencies fell in the first six months by 151. Moreover, a reduction of working time has been implemented in various group companies. On top of that, as part of a stringent financial policy, investments have been reduced and the company is being managed very much in terms of working capital. Debt reduction and financing On 18 February 2009, Gamma Holding reached agreement with the banks on new financing arrangements until March 2010, thus bringing the total facilities made available by the syndicate of banks to EUR 390 million. Improved financing conditions were agreed in mid-July 2009. The main group companies are parties to the financing agreement and have provided extensive collateral in that connection. In the new agreement the financial covenants have been eased and account has been taken of the difficult market conditions with which Gamma Holding has to contend. Moreover, an extension of the financing until mid-July 2011 is possible. This gives the company time to put into effect its programme of cost savings, divestments and restructurings. One of the conditions for this extension is the granting of a conversion right to the syndicate of banks. This right permits the banks to convert a portion of the loan facilities amounting to EUR 30 million into newly issued cumulative preference shares. The banks can only exercise this option if (i) the available credit under the new credit agreements is less than EUR 5 million, or (ii) the net interest-bearing debt in relation to the EBITDA is greater than 7.5. The dividend on the cumulative preference shares is 12% of the amount paid on those shares. In this way the syndicate of banks can jointly obtain at least 50.1% of the voting rights in Gamma Holding's increased issued share capital. At 30 June 2009 the net interest-bearing debt in relation to the EBITDA was 5.8 and is thus within the parameters presently agreed with the syndicate of banks. The granting of the conversion right and the amendment of Gamma Holding's articles of association which this necessitates have to be approved by the shareholders. A motion to that effect will be dealt with at the Extraordinary General Meeting of Shareholders to be held on Thursday 30 July 2009. To reduce the company's debt, the process of disposing of companies at a reasonable price has been continued. In present market conditions, however, this is still very difficult because of the low valuation levels and the limited availability of acquisition finance. Against this background Gamma Holding will continue to focus primarily on further implementation of the programme of cost savings and restructurings already announced. Furthermore, Gamma Holding is still open to a public-to-private transaction. Risk management Gamma Holding attaches great importance to risk control. To increase risk awareness within the group, to gain a better understanding of the existing risks and to control identified risks more effectively, Gamma Holding has a structured system for risk management. This system, as well as the risk profile and the main risks, have been described in the annual report for 2008. The nature and possible scale of these risks are also applicable to the second half of 2009. The following should be noted in this connection: * Market conditions in the second half of 2009 are expected to continue to be difficult. If these conditions deteriorate further, this could potentially have a major effect on the markets in which Gamma Holding and its companies operate, the position in these markets and hence the expected future cash flows. * The worsened economic conditions imply greater uncertainty regarding the collectability of debts, partly due to the risk of a larger number of bankruptcies. * Accelerating the reduction of the number of employees may have an effect on the speed of execution of the measures to be taken. * Gamma Holding continually monitors the identified risks and will continually follow developments where new risks can arise and identified risks can change in the second half of 2009. Changes to the Executive Board After the General Meeting of Shareholders of Gamma Holding N.V. held on 23 April 2009, the Supervisory Board appointed Mr L. (Leendert) van Reeuwijk (44) as a member of the Executive Board and Chief Financial Officer. Leendert van Reeuwijk has been employed by Gamma Holding as Group Controller since 2 August 2005. In June Mr Meint Veninga decided, in agreement with the Supervisory Board, to step down as chairman of the Executive Board and CEO of Gamma Holding as of 1 August 2009. The Supervisory Board intends to appoint Mr J.H.L. (Jan) Albers (57) as his successor after the Extraordinary General Meeting of Shareholders. Outlook In spite of a few positive signals, Gamma Holding does not anticipate an improvement in the current relevant market conditions in the second half of 2009. The second six months will continue to be difficult. Gamma Holding will therefore continue to closely monitor market conditions and make changes to the organisation as necessary. With the aforementioned measures Gamma Holding expects to remain within the newly agreed bank covenants and to post better results (EBITDA (1)) in the second half of the year than in the first. Gamma Holding will publish its trading update on the third quarter before the opening of the stock exchange on Friday 23 October 2009. On that occasion it will, as well as reviewing the figures, provide further insight into relevant developments. Statement by the Executive Board The Executive Board hereby declares that, to the best of its knowledge: * the consolidated interim financial statements, which have been prepared in accordance with IAS 34, Interim Financial Reporting, give a true and fair view of Gamma Holding's assets and liabilities, its financial position and the results for Gamma Holding and the consolidated companies; and * the half-year report of the Executive Board includes a fair review of the information required pursuant to section 5:25d, subsections 8 and 9 of the Dutch Financial Markets Supervision Act (Wet op het financieel toezicht). Helmond, 28 July 2009 Executive Board of Gamma Holding N.V. Meint Veninga, chairman Leendert van Reeuwijk, CFO Appendix Consolidated interim financial statements for first half-year 2009 (1) Group result before income tax, interest, depreciation, amortisation and impairment of property, plant and equipment and intangible assets. This announcement was originally distributed by Hugin. The issuer is solely responsible for the content of this announcement.