December 2008 Discussions with Investors Discussions with Investors ING 11th Annual EMEA Forum in...

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.


AgendaAgenda

Company Introduction

Strategic Objectives

9M 2008 Financial Performance

2008 Guidance

2009 Outlook

Appendix


Company Company IntroductionIntroduction


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


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


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


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


Strategic ObjectivesStrategic Objectives


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


First 9 Months andFirst 9 Months and Q Q3 2008 Financial 3 2008 Financial PerformancePerformance

11


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


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


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%


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%


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%)


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


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


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


AppendixAppendix


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


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 %


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


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


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


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.


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


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


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


PEGAS Organizational ChartPEGAS Organizational Chart


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]

December 2008 Discussions with Investors Discussions with Investors ING 11th Annual EMEA Forum in...

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