Gamma Holding posts net profit of EUR 13.1 million

Key developments in the first half of 2004

• Decrease in turnover of Exotic Fabrics
• Strengthening of Gamma Technologies through acquisitions
• Start of production for Belting Technology and Sleep Care Fabrics in China
• Turnover: EUR 437 million (2003: 464 million)
• Operating result: EUR 26.7 million (2003: 38.0 million)
• Net profit: EUR 13.1 million (2003: 18.0 million)
• Earnings per share: EUR 1.78 (2003: 2.39)

Results

The turnover of Gamma Holding fell by 6% in the first half of the year, from EUR 464 million in 2003 to EUR 437 million. This includes a 2% positive effect of acquisitions. Currency movements had a negative effect of 2%. On a comparable basis turnover fell by 6%; this was almost completely due to Exotic Fabrics.

The operating result fell by 30% from EUR 38.0 million in the first half of 2003 to EUR 26.7 million in 2004. This includes a 1% positive effect of acquisitions. Currency movements had a negative effect of 4%.

Developments per sector

Gamma Technologies

The turnover of the Gamma Technologies sector rose by 1% to EUR 230 million (2003: EUR 228 million) due to favourable developments in the Coating & Composite Technology and Sailcloth Technology units. The operating result fell by 3% to EUR 14.1 million (2003: EUR 14.5 million).

Within Gamma Technologies, the performance of Belting Technology and Filtration Technology fell short of expectations. Consequently, a "Planning for growth" project has been started in this sector as a platform for accelerating growth and improving the results.

In the first half of the year the companies in the Gamma Technologies sector were involved in a number of interesting projects. For instance, Coating & Composite Technology has supplied materials for the covering of the Olympic Stadium in Berlin, and Belting Technology has developed a new check-in belt, for which the first orders have been received from Australian and Asian airports. During the Olympic Games in Athens sailcloth from Sailcloth Technology again contributed to the winning of many Olympic medals.

The Belting Technology business unit had a difficult start to the year, particularly in the United States, due to reduced market demand and the weak dollar. Signs of recovery emerged in the second quarter. In China a joint venture was started in the first half of 2004. This joint venture, in which Gamma Holding holds a majority stake, manufactures and distributes process and conveyor belts for the local Chinese market.

The Filtration Technology business unit had to contend with stagnating markets in Europe and Asia. The market in the United States did recover, but currency movements put pressure on margins. The business unit was strengthened by the acquisition of Goodman. Goodman manufactures and sells filter cloths for wet filtration in the chemicals industry and for application in water-purification installations.

The Coating & Composite Technology business unit performed well. Indutex benefited from rising demand for all its product groups (billboards, bullet-proof materials and coated textiles) in the second quarter. The acquisition of Biscor also contributed to this good performance. Biscor and Green Belting Industries (the latter acquired in 2003) have provided a good starting position on the global growth market of Glass PTFE. Biscor develops, manufactures and sells glass, aramide and other high-quality products with a coating of fluorcarbon and silicone. The products are applied in the food and packaging industries, where resistance to high temperatures and tough chemical and biological conditions are required.

In the first half of 2004 the Sailcloth Technology business unit performed very well, thanks in part to this year's acquisition of Fraser (Australia). Fraser's activities include the development, manufacture and sale of pre-treated sailcloth segments based on D4 membrane technology. The acquisition of Fraser enables Gamma Holding, as the global market leader in sailcloth technology, to serve the growth segment of membrane sails.

Gamma Comfort & Style

The turnover of this sector fell by 12% to EUR 207 million (2003: EUR 236 million). The operating result decreased by 46% to EUR 12.6 million (2003: 23.5 million). Improved results for Sleep Care Fabrics and stable results for Car Fabrics were offset by a sharp decline in results of Exotic Fabrics.

The Sleep Care Fabrics business unit benefited from improved market conditions in a number of European countries and the favourable effects of ongoing cost reductions. Volume increases in the United States were offset by the weaker US dollar. In the United States, preparations were made to further expand local production capacity. The start of production activities in China and Argentina also helped to strengthen this business unit's market position.

Despite ongoing difficult market conditions Car Fabrics managed to stabilise its results. Lower levels of turnover and further price pressure were compensated by the positive effects of cost reductions and the decision in 2003 to take an increased stake in Bhilwara Melba De Witte, the Indian supplier to the automotive industry. The establishment of competence centres will be completed by year-end 2004, which will have a positive effect on the competitiveness of the Car Fabrics business unit.

As announced earlier this year, sales of Exotic Fabrics in Africa have fallen sharply. The main reasons for this are the decline in purchasing power due in part to the weak US dollar, the deterioration in the political and economic situation in Ivory Coast, and the unrest and import restrictions in Nigeria. The drastic decline in sales resulted in considerable overcapacity. To safeguard the future, it is necessary to adjust the organisation in Helmond to the lower level of sales. A reorganisation plan has been submitted to the Works Council for their opinion. The plan aims to reduce the current workforce of around 600 to a level of around 450. Talks will soon be held with the trade unions regarding a social plan. In Ivory Coast a downsizing of approximately 25% (230 employees) has already been implemented.

Financial data for the first half of 2004

The deficit on the balance of financial income and expense improved to a level of EUR 5.9 million (2003: EUR 9.1 million) due to a lower interest rate and an improved result from other participating interests. The level of interest-bearing liabilities rose to EUR 279 million (2003: EUR 259 million).

The effective tax rate fell from 37.2% to 36.2%, mainly due to a number of non-recurring gains.

The net profit decreased by 27% to EUR 13.1 million (2003: EUR 18.0 million). Earnings per share amounted to EUR 1.78 (2003: EUR 2.39). Before amortisation of goodwill, earnings per share amounted to EUR 1.92 (EUR 2.47).

In the first half of 2004 investments totalled EUR 16.3 million (2003: EUR 11.1 million), slightly below the level of depreciation of EUR 17.3 million (2003: EUR 20.7 million).

No businesses were divested in the period under review.

IFRS

International Financial Reporting Standards (IFRS) will be applied with effect from the financial year 2005. Their main impact is expected to be on deferred taxation, the pension provisions and the amortisation of goodwill. As things stand at present, the impact of IFRS on Gamma Holding's shareholders' funds and results is expected to be limited.

Outlook

Based on the developments in the first half of the year, Gamma Holding maintains its forecast of June 2004 that a significantly lower net profit will be achieved over the full year 2004 than was the case in 2003. This includes the expected restructuring costs for Exotic Fabrics in the second half of the year.

Executive Board, Gamma Holding N.V.

Helmond, 3 September 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.