Fiberweb regains its fitness and focus

Having emerged from a major restructuring, fabric producer Fiberweb, whose materials find their way into everything from nappies and water filters to industrial wipes and construction products, is now fitter and fully focused on some attractive global markets. Under determined CEO Daniel Dayan, margins are expanding, debt levels are reducing and the fully listed firm is poised for profitable long-term growth.

Let us begin with a potted history. Tough times followed Fiberweb’s demerger from aviation services group BBA in 2006, with Dayan, drafted in as CEO in 2005, needing to drive through a dramatic turnaround in order
to restore the company’s competitiveness and focus. Involving serious cost cutting and the company divesting itself of unprofitable business lines, the turnaround resulted in initial pain, with a near £90 million operating loss after restructuring charges posted for 2007, Fiberweb’s first year as a separate public company.

‘We carried out a lot of restructuring in 2006, 2007 and 2008,’ recounts Dayan, a mover and shaker at building systems group Novar before its acquisition by US conglomerate Honeywell in 2005. But, having trimmed the remaining fat from its European consumer fabrics operations last year, he says the bulk of the turnaround is now done and dealt with.

This leaves Fiberweb, with plants spanning Asia, North America and Europe, focused on making high-performance, non-woven fabrics for the industrial and hygiene markets. Its materials are targeted at niche industrial markets, including filtration and agriculture, as well as specialist construction, where they have applications in building wrap and roofing underlay. For global hygiene markets, the group is a renowned supplier of non-woven materials to nappy, feminine hygiene and even adult incontinence product producers.

‘Trading has been good in hygiene and industrial,’ insists Dayan, pointing out that the company has been a beneficiary of a flight to quality by hygiene customers during the recession. Over in industrial, sales success has been enjoyed with new products despite ongoing doom and gloom in global house building.

Going forwards, there are opportunities to grow the business organically through new products, while acquisitions could feature further down the line. ‘We have said that the industrial and hygiene markets need to consolidate, and there are one or two deals to be done,’ Dayan tantalises.

Meanwhile, hopes are high for ‘FitesaFiberweb’, the joint venture formed with Petropar SA, which combines certain Fiberweb assets in the US and Mexico with the Fitesa non-woven business in Brazil. Creating a producer of ‘spunbond’ non-woven materials, the joint venture offers lots of potential to serve producers of baby and adult nappies as well as feminine care products from a state-of-the-art base in the Americas.

As well as its honed growth focus, Fiberweb’s recent financials reflect the fruits of turnaround. Interims to last June showed a 21.5 per cent operating profits increase to £10.7 million, despite sales down 7 per cent to £242.5 million. Encouragingly, operating margins expanded from 4 per cent to 4.4 per cent, representing a fourth consecutive half of margin gains.

More recently, Fiberweb issued an update in which it said that calendar 2009 results would beat forecasts, with underlying operating profit significantly ahead of 2008 and the company achieving its fifth consecutive half of operating margin growth. Further balance sheet strengthening was flagged up – investors can now expect a better year-end net debt figure than the earlier £138 million forecast in the market.

Panmure Gordon & Co subsequently upgraded its profits and earnings estimates for 2009 and 2010. For 2009, investors should now look for pre-tax profits of £11 million and earnings of 9.1p, ahead of £13.5 million (upgraded from £11.5 million) and EPS of 10.2p for 2010.

On those projections, the shares are selling for less than seven times predicted earnings for the current financial year and, offering longer-term upside potential, are well worth buying ahead of forthcoming full-year figures.