december 2008 discussions with investors discussions with investors ing 11th annual emea forum in...
TRANSCRIPT
December 2008December 2008
Discussions with Discussions with InvestorsInvestors
ING 11th Annual EMEA Forumin Prague
… … every single detail …every single detail … September 2008September 20082
Cautionary StatementCautionary StatementThis document has been prepared by PEGAS NONWOVENS SA (the “Company”) solely for use at the Presentation. Any forward looking statements concerning future economic and financial performance of the Company contained in this Presentation are based on assumptions and expectations of future development of factors having a material influence on the future economic and financial performance of the Company. These factors include, but are not limited to, the legal environment, the future macroeconomic situation, the market competition, the future demand for nonwoven textiles and other related products and services and development of raw material prices. The actual development of these factors, however, may be different. Consequently, the actual future financial performance of the Company could materially differ from that expressed in any forward looking statements contained in this Presentation.
Although the Company makes every effort to provide accurate information, we cannot accept liability for any misprints or other errors. In preparation of this document we used certain publicly available data. While the sources we used are generally regarded as reliable we did not verify their content. PEGAS does not accept any responsibility for using any such information.
This document is provided for information and as a matter of record only. It does not constitute an offer to sell or a solicitation of an offer to buy or sell securities or other financial instruments in any jurisdictions or any advice or recommendation with respect to such securities or other financial instruments of the Company.
The distribution of this document in certain jurisdictions may be restricted by law. This document may not be used for, or in connection with, and does not constitute, any offer to sell, or an invitation to purchase, any securities or other financial instruments of the Company in any jurisdiction in which such offer or invitation would be unlawful. Persons in possession of this document are required to inform themselves about and to observe any such restrictions. Any failure to comply with these restrictions may constitute a violation of the securities laws of any such jurisdiction.
… … every single detail …every single detail … September 2008September 20083
AgendaAgenda
Company Introduction
Strategic Objectives
9M 2008 Financial Performance
2008 Guidance
2009 Outlook
Appendix
… … every single detail …every single detail … September 2008September 20084
Company Company IntroductionIntroduction
… … every single detail …every single detail … September 2008September 20085
OverviewOverview
• Product: Spunmelt Nonwoven Textiles –PP/PE
• Experienced and Growing: since 1990
• 389 Employees
• 8 Production Lines
• Approx. 70 000 tons production based on current product mix (2008e)
• Luxembourg entity listed in Prague and Warsaw
• 100% Free Float Source: Company Data
010 00020 00030 00040 00050 00060 00070 00080 000
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
E
Production in tonnes
AnnualAnnual Production GrowthProduction Growth
… … every single detail …every single detail … September 2008September 20086
ProductsProducts
Nonwoven Spunmelt Textiles
• Hygiene (87% production in 9M 2008)
– Baby Diapers
– Feminine Hygiene
– Adult Incontinence
• Technical (13% production 9M 2008)
– Medical
– Resistant textiles for Building Industry
– Furniture
– Agriculture
– Filtration
– Wipes
… … every single detail …every single detail … September 2008September 20087
Optimal Location• Central European Base
• Low Cost Area (Staff costs and Energy)
• Government Incentives
• Room for Expansion in the current Production Site in Znojmo
Geographical AdvantageGeographical Advantage
ZnojmoBučovice
… … every single detail …every single detail … September 2008September 20088
Meeting Market NeedsMeeting Market Needs
• Highest Quality
• Competitive Pricing
• Continuous Development
• Close cooperation with customers to
identify and develop new products
• On time delivery
• Regular Increase in Production
Efficiency
• Flexibility
… … every single detail …every single detail … September 2008September 20089
Strategic ObjectivesStrategic Objectives
… … every single detail …every single detail … September 2008September 200810
Strategic ObjectivesStrategic Objectives
• To maintain technology leader position in Europe
• Develop and deliver technologically advanced products for the market
• To work with our customers and suppliers in developing new products ahead of the market
Technological Leadership
• New capacity installations in line with market demand
• To have sufficient capacity to satisfy the leading European manufacturers
• Monitoring M&A opportunities to become most strategic supplier to global customers
Market Growth Opportunities
• Growing revenues in line with market growth
• To maintain our leading margin position in the industry
• Use cash flow to support expansion, repay debt and to pay out dividends
Delivering Financial Performance
… … every single detail …every single detail … September 2008September 200811
First 9 Months andFirst 9 Months and Q Q3 2008 Financial 3 2008 Financial PerformancePerformance
11
… … every single detail …every single detail … September 2008September 200812
9 Months9 Months andand Q Q3 20083 2008 Key Highlights Key Highlights• Revenue growth of 22.1% yoy in 9M 2008 on the back of higher production output
and annual growth in material prices
• EBITDA up by 0.8% yoy in 9M 2008 and by 4.7% yoy in Q3 2008
• Profitability was mostly affected by CZK development, volatility of polymer price indices and higher stock levels related to a lower demand for technical materials
• High net profit of EUR 23.5 million in 9M 2008 mainly due to unrealized FX gains and lower interest expenses
• Steady net debt levels after the dividend pay-out and financial stability
Financial Performance
Growth & Technology
• The polymer price decline should positively impact EBITDA in Q4 2008
• Higher stock levels of finished products due to demand decline from the construction industry should continue also for the rest of this year
• Negotiations with customers for 2009 to-date are satisfactory in terms of committed volumes
Markets and Business
• Finalisation of investment incentives conditions related to the possible construction of the next production line
• PEGAS will continue monitoring M&A opportunities
• Commercialisation of new R&D projects and anticipated launch of pilot equipment for plasma treated nonwovens
12
… … every single detail …every single detail … September 2008September 200813
9M and9M and Q Q3 20083 2008 Profit and Loss Statement Profit and Loss Statement
Note: Unaudited consolidated financial results in accordance with IFRS. 9M 2007 Results include the one-off revenue from the arbitration proceeds of Euro 1.03 million
(EUR’000s) Q3 9M
2007 2008 % change 2007 2008 % change
Revenue 30,014 35,421 18.0% 90,731 110,768 22.1%
Raw materials & consumables (19,464) (24,246) 24.6% (57,373) (75,651) 31.9%
Staff costs (1,563) (1,809) 15.7% (4,326) (4,929) 13.9% of which Share price bonus (50) 11 n/a (107) 489 n/a
Other net operating income/(expense) 317 378 19.2% 1,162 246 n/a
EBITDA 9,304 9,744 4.7% 30,194 30,434 0.8%
EBITDA margin (%) 31.0% 27.5% (3.5pp) 33.3% 27.5% (5.8pp)
Depreciation (3,058) (4,358) 42.5% (9,110) (12,636) 38.7%
Profit from operations (EBIT) 6,246 5,386 (13.8%) 21,084 17,798 (15.6%)
EBIT margin (%) 20.8% 15.2% (5.6pp) 23.2% 16.1% (7.1pp)
FX gains and other financial income (net) 5,467 (4,469) n/a (690) 13,066 n/a
Interest costs (net) (1,699) (1,634) (3.8%) (8,148) (4,805) (41.0%)
Income tax expense (174) 982 n/a 239 (2,561) n/a
Net Profit 9,840 265 (97.3%) 12,485 23,498 88.2%
Net Profit Margin (%) 32.8% 0.7% (32.1pp) 13.8% 21.2% 7.4pp
13
… … every single detail …every single detail … September 2008September 20081414
Cost CompositionCost Composition
Polypropylene & polyethylene
67%
Staff costs5%
Depreciation14%
Electricity6%
Other raw materials and consumables
8%
Cost Breakdown in 9M 2007 Cost Breakdown in 9M 2008
+31.6%
• Overall cost level impacted by additional production capacity, higher prices of raw materials and energy and CZK appreciation
• Staff costs positively impacted by the fair value of phantom share option plan in 9M 2008
• Polymers and electricity up by 30.8% and 62.2% yoy respectively, due to higher consumed volumes based on the new production line and higher energy prices
• Depreciation higher due to the new line and CZK appreciation
Polypropylene & polyethylene
67%
Depreciation13%
Other raw materials and consumables
9%
Staff costs6%
Electricity5%
… … every single detail …every single detail … September 2008September 20081515
Balance Sheet Balance Sheet
Note: Unaudited consolidated financial results in accordance with IFRS
• Increase in inventories on the back of higher stock of raw materials and spare parts
• Stable net debt / net cash position after the dividend pay-out confirming strong and secure financial position of the Company
(EUR’000s) Sep 30th, 2007 Dec 31st, 2007 Sep 30th, 2008 Unaudited Audited Unaudited
Sep 30th, 2008/ Dec 31st, 2007
change in % Non-current assets 204,965 224,708 230,948 2.8%
Property, plant and equipment 120,735 137,355 136,591 (0.6%) Intangible assets incl. goodwill 84,230 87,353 94,357 8.0%
Current assets 36,962 39,171 45,967 17.3% Inventories 10,195 12,416 15,437 24.3% Trade and other receivables 26,200 26,244 30,165 14.9% Bank balances and cash 567 511 365 (28.6%)
Total assets 241,927 263,879 276,915 4.9%
Total share capital and reserves 82,550 93,885 113,621 21.0% Non-current liabilities 132,210 128,799 117,735 (8.6%)
Bank loans due after 1 year 117,225 116,508 104,777 (10.1%) Deferred tax 14,912 12,190 12,957 6.3% Other payables 73 101 1 (99.0%)
Current liabilities 27,167 41,195 45,559 10.6% Trade and other payables 19,156 33,218 23,946 (27.9%) Tax liabilities 45 1,427 2,487 74.3% Bank overdrafts and loans 7,966 6,550 19,126 192.0%
… … every single detail …every single detail … September 2008September 20081616
Cash Flow StatementCash Flow Statement
Note : Unaudited consolidated financial results in accordance with IFRS
Nine Months to September 30th (EUR ’000s) 2007 2008
Unaudited Unaudited Change in %
Profit before tax 12,246 26,059 112.8%
Amortization/ Depreciation 9,110 12,636 38.7%
Foreign Exchange 727 (3,891) n/a
Interest Expense 8,343 4,816 (42.3%)
Fair value changes of interest rate swaps (455) 219 n/a
Other financial (expense) / income (414) 130 n/a
Change in inventories (1,832) (2,025) 10.5%
Change in receivables (2,105) (2,122) 0.8%
Change in payables (2,229) 5,614 n/a
Income tax paid (120) (1,774) 1,378.3%
Net Cash Flow from Operating activities 23,271 39,662 70.4%
Purchases of property, plant and equipment (18,678) (17,824) (4.6%)
Net Cash Flow used in Investment activities (18,678) (17,824) (4.6%)
Change in bank loans (11,817) (9,198) (22.2%)
Change in long term debt (202) (100) (50.5%)
Distribution (Dividends) (7,014) (7,845) 11.8%
Interest paid (7,421) (4,711) (36.5%)
Other financial income / (expense) 414 (130) n/a
Net Cash Flow used in Financing activities (26,040) (21,984) (15.6%)
Bank balances and cash at the beginning of the year 22,014 511 (97.7%)
Change in cash and cash equivalents (21,447) (146) (99.3%)
Bank balances and cash at the end of the period 567 365 (35.6%)
… … every single detail …every single detail … September 2008September 20081717
3.5
0.30.4
0,0
2,0
4,0
Q3 2007 Q3 2008
Eur
o m
illion
Expansion CAPEX Maintenance CAPEX
CAPEX DevelopmentCAPEX Development
• Expansion CAPEX in 2008 relates to the remaining payments for the 8th line project
• Full year 2008 CAPEX Guidance of Euro 18 million at constant currency of CZK/ EUR 26
Source: Company data
18.4 16.7
0.31.1
0,0
5,0
10,0
15,0
20,0
9M 2007 9M 2008E
uro
milli
on
Expansion CAPEX Maintenance CAPEX
(80.0)%€ 18.7 m
€ 17.8 m
CAPEX Breakdown Q3 CAPEX Breakdown 9M
(4.8%)€ 3.5 m
€ 0.7 m
… … every single detail …every single detail … September 2008September 200818
2008 Guidance2008 Guidance
• The achieved results in the first nine months of 2008 indicate a strong
position of the Company in its core market and an outstanding
performance in a highly volatile financial and economic environment
• Number of unforeseen developments had negative impacts on the
financial performance to date - lower demand for technical materials,
unexpected appreciation of the CZK and extreme polymer price
volatility in 2008
• In Q4 2008 the Company will benefit from the decline in polymer prices
• EBITDA for the full year is expected to exceed the one achieved in 2007,
however the communicated guidance range might not be met
18
… … every single detail …every single detail … September 2008September 200819
2009 Outlook2009 Outlook
• Negotiations with customers to-date for 2009 indicate that production capacity should be sold out
• Level of inventories should decline in Q2 and Q3 2009
• Anticipated further debt repayment to improve leverage if no other investment opportunities materialize
• Rising operating costs and lower demand for technical materials leading to more competition in hygienic segment
• Tailormade R&D projects to satisfy needs of key customers
19
… … every single detail …every single detail … September 2008September 200820
AppendixAppendix
… … every single detail …every single detail … September 2008September 20082121
462 700524 000
578 700633 000 672 346 714 121
73 50070 00056 00054 20051 30037 100
8,0%9,8% 9,4% 8,8%
10,4% 10,3%
0
200 000
400 000
600 000
800 000
2004 2005 2006 2007 2008f 2009f
To
nn
es
0%
5%
10%
15%
Mar
ket
shar
e in
%
NW SM PP,PE NW SM Pegas NW SM Pegas market share %
• Nonwovens spunmelt PP/PE market in Europe was growing 11% CAGR (2004-2007)
• PEGAS market share in Europe was rising by 14.7% CAGR (2004-2007) – faster than its core market as a result of regular capacity additions
• PEGAS market share in Europe is currently 10.4% based on 2008 production output
European Spunmelt (SM) Nonwovens (PP/PE) Market (2004-2009e)
Relevant Market Overview - Relevant Market Overview - SSpunpunmeltmelt
Source: EDANA, PEGAS
… … every single detail …every single detail … September 2008September 20082222
Market Overview - HygieneMarket Overview - HygieneEuropean Nonwovens Spunmelt Hygiene Market (2004-2009e)
• European hygiene nonwovens market expanded 7.4% CAGR (2004-2007)
• European spunmelt hygiene nonwovens market grew 16% CAGR (2004-2007)
• PEGAS market share in European hygiene spunmelt market is anticipated to reach 16% in 2008
• PEGAS’s production for the hygiene market grew 15% CAGR from 2004 to 2007 in line with the core hygiene market
Source: EDANA, PEGAS
593 255 538 100
501 100 472 700
434 100
565 005
413 139 382 536 354 200
280 200 227 000
318 900
14,5% 15,4%16,4%14,3%
16,1% 15,6%
-
100 000
200 000
300 000
400 000
500 000
600 000
700 000
2004 2005 2006 2007 2008f 2009f
To
nn
es
0,0%
5,0%
10,0%
15,0%
20,0%
25,0%
30,0%
Mark
et
sh
are
in
%
NW total Hygiene NW SM Hygiene Pegas market share SM Hygiene %
… … every single detail …every single detail … September 2008September 20082323
Overview of European Production CapacityOverview of European Production Capacity
Installed capacity1 in % – 2008e EOP • PEGAS is no. 2 producer of spunmelt nonwovens in Europein terms of installed production capacity
• European market has a stable surplus of exports over imports in spunmelt nonwovens, app. 98 thousand tonnes in 2007
• Share of capacity base held by modern, state-of-art technology is expected to increase and equal approximately 87% in Europe at the end of 2008 driven by needs of hygiene customers
• European market is more fragmented than other region with over 30 producers in total
Others
23%
Gulsan
4%Radici
4%
Albis
5%Dounor
5% Av gol
7%Fibertex
7%
Tesalca
8%
Union
8%
PEGAS
11%
BBA Fiberweb
18%
Source: PEGAS, John StarrNote: 1) Installed spunmelt production capacity in Europe estimate, end of period 2008
… … every single detail …every single detail … September 2008September 200824
Capacity vs. Demand in Europe Capacity vs. Demand in Europe Position of PEGASPosition of PEGAS
• The annual capacity increase in the European spunmelt nonwoven
market between 2003 – 2007 was approx. by 72k tonnes
• In 2007, 49k tonnes were added in Europe. In 2008 and 2009 capacity is
expected to increase on average by 39k tonnes
• End market is growing by 5-6% p.a. (by 28-30k tonnes in spunbond
hygiene demand), the difference is as usual balanced by less than
100% utilization of capacities and European exports
Supply vs. Demand
proportioncreates healthy
market competition
• 50% of new capacities to be added in 2008-2009 represent unattested
technologies
• 37% of new capacities to be added in 2008-2009 represent new entrants
into the industry
• Structure of new capacities to be added in 2008- 2009 is highly
advantageous for PEGAS and represents new market opportunities for
growth
Structure of Capacity
Increase is favourable for
PEGAS
… … every single detail …every single detail … September 2008September 200825
European SB New Capacity OverviewEuropean SB New Capacity OverviewEuropean SB New Capacity OverviewEuropean SB New Capacity Overview
Source: John Star, Company data
Total new capacity 96,000 tonnes
Non-hygiene
20%
Hygiene80%
2006-2007 by Segment
Total new capacity 78,000 tonnes
Non-hygiene
31%
Hygiene69%
2008-2009 by Segment
Other technology
non-hygiene
20%
Reicofil technology
hygiene80%
2006-2007 by Technology
Other technology
hygiene33%
Other technology
others17%
Reicofil technology
others15%
Reicofil technology
hygiene35%
2008-2009 by Technology
Existing producers hygiene
72%
Existing producers
others10%
New entrants others
9%
New entrants hygiene
9%
2006-2007 by New Entrants
Existing producers hygiene
53%
Existing producers
non-hygiene
10%
New entrants
non-hygiene
21%
New entrants hygiene
16%
2008-2009 by New Entrants
… … every single detail …every single detail … September 2008September 20082626
Revenue Breakdown by ProductRevenue Breakdown by Product
19.77
58.49
12.47
28.26
67.62
14.89
0
10
20
30
40
50
60
70
80
Non-hygiene Hygiene - commodity Hygiene - TA
Rev
enu
es (
EU
Rm
)9M 2007 9M 2008
Source: Company data
19.4%
• Sales for the hygiene industry in the first 9M 2008 accounted for 86.6% share of total revenues confirming a strong performance in this segment
• Rising share of technologically advanced materials on total sales - 25.5% in the first 9M 2008 up from 21.8% in 2007
Q3 9M
15.6%
42.9%
7.21
18.60
4.20
7.89
22.67
4.87
0
5
10
15
20
25
30
Non-hygiene Hygiene - commodity Hygiene - TA
Reven
ues (
EU
Rm
)
Q3 2007 Q3 2008
16.0%
21.9%
9.4%
Note: Company defines technologically advanced products as those with higher added value in terms of either higher margins or material properties that protect the Company from easy substitution of its products by its competitors.
… … every single detail …every single detail … September 2008September 20082727
Revenue Breakdown by GeographyRevenue Breakdown by Geography11
3.48
29.56
57.69
3.19
47.02
60.56
0
10
20
30
40
50
60
70
WE CEE and Russia OtherR
even
ues
(E
UR
m)
9M 2007 9M 2008Source: Company data
5.0%
• Sales in Western Europe remain a key focus with over 50% share on total revenues
• Sales in CEE and Russia substantially up due to increased sales to the Czech Republic and
Poland
Q3 9M
0.24
9.66
20.11
0.47
15.33
19.63
-2
2
6
10
14
18
22
WE CEE and Russia Other
Rev
enu
es (
EU
Rm
)
Q3 2007 Q3 2008
59.1%
(8.3%)
(2.4%)
58.7%
95.8%
Note: (1) Revenues by georgraphy are based on the final location of delivery
… … every single detail …every single detail … September 2008September 200828
Personal hygiene market in EuropePersonal hygiene market in EuropePersonal hygiene market in EuropePersonal hygiene market in Europe
• Multinationals
(P&G, Kimberly-Clark, SCA,
Johnson&Johnson, Ontex, etc.)
• Regional leaders (e.g. TZMO in femcare
in Poland)
• Market leader (P&G) commands nearly
50% market share where the top three
players control approximately 75% of
the market
• We supply most of the key players in
Europe
• Market consists of three major groups:
- Baby care (70% of consumption)
- Feminine care (10% of consumption)
- Adult incontinence (20% of
consumption)
Baby care Feminine care
Procter & Gamble48%
Kimberly-Clark14%
SCA15%
Ontex10%
Others13% Procter & Gamble
48%
Johnson & Johnson 15%
Ontex10%
SCA8%
TZMO4%
Kimberly-Clark3%
Others12%
SCA40%
Hartmann15%
Ontex8%
PaperPak5%
Others11%
TZMO2%
Tyco3%
Fater3%
Indas4%
Artsana3%
Ausonia3%
Abena3%
Source: Company
Adult incontinence
… … every single detail …every single detail … September 2008September 200829
Pass-through mechanism delaysPass-through mechanism delays
1,000
1,050
1,100
1,150
1,200
1,250
1,300
10/05 12/05 02/06 04/06 06/06 08/06 10/06 12/06 02/07 04/07 06/07 08/07 10/07 12/07
Eur
o/ to
nnes
Source: Company dataNote: (1) PP price level calculated on internal documents of PEGAS
• Avg. 2007 prices of polymers increased by 4% yoy
• Regardless of other factors impacting the total costs, polymer costs remain its key driver
• Changes in polypropylene prices are transferred to revenues with a delay according to the contracts with
customers
• Negative EBITDA impact of the delays for 2007 was Euro 0.8 million
Development of PP Price Level1 Illustrative Pass-through Delays
PP Composite Index
Avg. 2006
1,158
Avg. 2007
1,203
Sal
es/
raw
m
ater
ials
in E
uro
Negative EBITDA impactPositive
EBITDA impact
Sales
Costs of PP
Q1 Q2 Q3 Q4
2007
… … every single detail …every single detail … September 2008September 200830
PEGAS Organizational ChartPEGAS Organizational Chart
… … every single detail …every single detail … September 2008September 200831
Reporting Schedule and Reporting Schedule and IRIR Contact Contact
Investor Relations :
Tel: +420 515 262 450
Fax: +420 515 262 505
E-mail: [email protected]