PRESTAL HOLDINGS LIMITED — Call Transcript 2004

Aug 31, 2004

Attention ASX Company Announcements Platform Lodgement of Investor Briefing

Symex Holdinas Ltd 14 Woodruff St Port Melbourne VIC 3207

Date of lodgement: 1 September 2004

Title: Investor Briefing - MD on financial performance, strategy and outlook

Record of interview:

CapitalConnect

You announced a consolidated net profit after tax (NPAT) for the full-year ended 30 June 2004 (FY04) of $A9.05m (9.6Acps) up 24% on the prior corresponding period (pcp). However, the result was at the low end of the quidance provided by the company in February of $A9-11 million. Why did the result come in at low end of quidance?

MD Mike Newton

We had a pre-tax write-down on plant & equipment of $A1.3m. The decision on the writedown was taken as the final year accounts were prepared, several months after the guidance given in February 2004. If this write-down is added back, the result would have been in the middle of the range provided.

CapitalConnect

The Board declared a final fully-franked 4cps dividend. When combined with the interim dividend of 2cps, it represents a 63% payout ratio. What is the Board's dividend policy?

MD Mike Newton

We don't have a policy but we do have a benchmark target that we will distribute between 60%-75% of earnings. I would like to stress it is not a policy because if we do acquire something or if we have extra funds then we may pay lower or higher dividends depending on our capital position at the time.

CapitalConnect

Net cash flow from operations improved by $A4.5m (104%) on pcp. What were the key drivers of this result?

MD Mike Newton

The majority of that is gross margin improvement from the point of view of selling prices. We ride our gross profits up and down on tallow prices in the oleo products business as opposed to Pental which has stable margins. In addition to this, we improved our working capital position.

CapitalConnect

EBIT margins have remained relatively stable around 12-14% over the last three years. What costs pressures is the business experiencing and what cost control measures do you have in place?

MD Mike Newton

We have partially managed the impact of the stronger Australian dollar on our US dollar sales through our hedge book. Our efficiency programs have improved the yield that we extract from tallow and on top of that the oleo products division has an annual cost savings incentive plan of a 5% nominal reduction in costs. This does not include tallow pricing or foreign exchange movements which are outside our control.

CapitalConnect

Symex's gearing ratio (net debt/equity) currently stands at about 93%, with interest cover (EBIT/interest expense) about 6 times. Are you comfortable with this capital position?

MD Mike Newton

We disclosed in our prospectus that the 3rd party valuation of the business was $A13m in land and $A68m in building and equipment and it is valued at much less than that in our books whereas the acquisition of Pental and the Unilever brands are about right. Our lenders are comfortable with the current position.

CapitalConnect

Personal care & homecare is a growth driver for Symex with revenue growing from zero in FY02 to $A27.4m in FY04, what is your current market share in Australia and what are vour projected plans?

MD Mike Newton

With the acquisition of the Unilever Brands our bar soap market share is about 21%. We have ample manufacturing capacity, we currently produce about 9-10 thousand tonnes (kt) of soap and we have capacity to produce 17kt. Our plan is to grow our markets in the export part of the business and run the factory at its maximum capacity. We see the five legs of private label, contract manufacturer, brands, industrial and export as the areas where we can increase our product sales to fill our capacity.

CapitalConnect

You mentioned the acquisition of the Unilever Brands, what is the expected revenue contribution in the foreseeable future? What is the strategy behind your movement into the fast moving consumer goods (FMCG) sector, such as synergies with the other divisions?

MD Mike Newton

We estimate these brands will contribute approximately $A60m per annum, about 40% of sales, thereby reducing the reliance on our oleo products revenue stream.

We bought the Unilever Brands because we saw them as icon brands which could be used in our industrial and consumer goods markets and we would extend on these brands in the areas of expertise that we had in terms of home care and personal care. They provide marketing and sales synergies for our sales force in their dealings with our primary buyers such as Coles Myers and Woolworths. Our intention is to grow these brands through other products that they are not currently marketed under.

CapitalConnect

What are the risks to this strategy?

MD Mike Newton

One of the potential risks is that being the major producer and supplier of soap in Australia some of our brands could be rationalised. We need to make sure that our brands have a position in the market such that they don't overlap and they are all essential products in the buyers' portfolio.

CapitalConnect

Your entry into home care and personal care products commenced with the acquisition of the Pental Products Ltd from Mayne for A$21m in March 2003. What is your investment criteria for acquisitions?

MD Mike Newton

Earnings per share positive, underlying that a future for growth, good management, good systems and the ability to grow the business.

CapitalConnect

The pricing of tallow is a critical component in the total operating expenses for Symex. What does tallow represent of your total cost base? How is it priced here in Australia and how does that compare to other manufacturers in the region?

MD Mike Newton

Tallow is priced in US dollars which provides a natural hedge against the sale of our oleo products which are also priced in US dollars. It is a significant part of our of operating expenses. Australia makes 500kt of tallow a year, most of which is exported. We buy directly from around 20 rendering companies in the Southern States of Australia. The purchasing is done on a monthly tender. We compete against exporters for that tender. there is no long-term pricing. Tallow tends to follow the palm oil and sova bean oil markets which are fully transparent on the Malaysian Board of Trade as well the Chicago Board of Trade. Tallow is not traded under those Boards so it tends to follow those markets. It is a very slim market and there are nowhere near the volumes of the palm oil and soya bean oil markets. The real substitute is palm oil.

The only other tallow oleo product manufacturers in the region are two producers in Japan whom we compete against. All the other producers use palm oil to make oleo chemicals and compete against us in glycerine and stearine. For oleic acid, there is very little competition originating from palm oil. Most of the competition is coming from Japan or from a company in Argentina where there is also ample tallow. The US makes 50% of the world's tallow, so three producers in the US compete against us in the oleic acid market.

CapitalConnect

What has been the impact of higher oil prices and base metal prices given the bulk of Symex's products are transported in steel drums and stainless steel tankers?

MD Mike Newton

We are not a consumer of petroleum oil however, utility costs (natural gas and electricity) represent about 7% of operating costs. These costs are well managed.

We hire stainless steel tankers and the cost of freight has reduced. For the steel drums we

lock in our costs for a two vear period which runs out in about 6 months time. Freight distribution represent about 8% of operating expenses.

CapitalConnect

On the operational side in the oleo products area, the company repaired two large filter presses at the Port Melbourne plant in July 2002 so that they were fit for designed purpose. How is this part of the plant operating and do you have any plans to expand?

MD Mike Newton

When we built the filter presses the design capacity was 18kt of oleic acid. I'm happy to report this year we have produced 18kt and sold 18kt. We recently increased the capacity of the presses by a further 10% and our target for this financial year is to produce and sell 20kt. The building of the new separation plant and the write down and closure of the old plant has generated savings in energy and intermediate chemicals. Furthermore, we have eliminated the hazardous chemical element of the plant.

CapitalConnect

In terms of current market conditions. Symex Holdings Ltd may potentially benefit from the recently agreed US Free Trade Agreement (FTA). What are the key changes that make this market economic in terms of the dismantling of import duties?

MD Mike Newton

The import duty for stearic acid is approximately $US40 per metric tonne and the import duty for oleic acid is approximately $US50/t. The margins we make in shipping the product to US is less than our other markets such as the Middle East. Once these duties are removed, this creates the opportunity to improve our margins in the US and shift some of our sales from less lucrative countries to the US. At the moment we are selecting the markets where we can make the most margin which is not the US under the current duties.

CapitalConnect

Symex exports around 65% of its production, what is the current status of your freight market which is priced in US dollars and is this a barrier to effectively compete in the US?

MD Mike Newton

Freight costs are a function of the positioning of containers around the world rather than the actual distances. At the moment, freight costs to Europe and the east coast of America are quite cost effective. Melbourne is in a very good position to take advantage of that because it receives 2 million of Australia's 3 million imported 20 foot (ft) equivalent containers a vear which provides cost-effective backloading. We select markets where the containers need to be re-positioned to and the US falls within this category.

CapitalConnect

How has the strength of the Australian dollar ($A) impacted your earnings? What is the company's policy in terms of hedging?

MD Mike Newton

The $A does impact our earnings both in the export market and domestically, fortunately we have a natural hedge with tallow and freight costs which are denominated in US dollars. To put an earnings sensitivity figure for a 1 cent movement in the AUD/USD exchange rate is very difficult because there are a number of variables other than the translation impact of our US dollar sales. Needless to say we would prefer to have a low dollar for this company.

Our policy in terms of hedging is to minimise risk. The consolidated entity enters into forward foreign exchange contracts to hedge a proportion of anticipated sale commitments denominated in foreign currencies expected in each month, within the following three years subject to Board approved limits. As at 30 June 2004 the company's outstanding forward hedge position is sell US dollars $36.5m at a weighted average rate of 0.5612 over two years and sell Japanese Yen $11.44m at 57.67 over two years.

CapitalConnect

What are the key financial goals for Symex Holdings in the next 3-5 years?

MD Mike Newton

Revenue up and costs down is our classic strategy. Assuming that current trading conditions continue through the period, the directors expect that profits for the first half of the current financial year will be between $A5.0million to $A5.5million NPAT. We believe that we need to grow our current businesses of oleo products and fast moving consumer goods. As a board we would also like to see a third leg to our business to give us more stability to offset some of the volatility that we incur through fluctuations in tallow prices.

CapitalConnect

Thank you Mike.

For more information on Symex Holdings Ltd visit www.symex.com.au or call Mike Newton on +3 9251-2347.