Industriehold. Cham Hold Hammer Retex: the ... - Investor Relations

Industriehold. Cham
Hold
Switzerland
Packaging/Paper 24-03-09
Bloomberg:INDN SW Reuters:INDN.S SEDOL no:4459307 CHF 200.00 on 23-03-09
Equity Research
Switzerland
Analysts
Patrick Rafaisz
patrick.rafaisz@vontobel.ch
+41 (0)58 283 63 46
Patrick Laager
patrick.laager@vontobel.ch
+41 (0)58 283 73 63
Hammer Retex: the sale, spin-off, going private, and
tender offer combo!
Following Industrieholding Cham's (IC) weak set of FY08 results, the company last week
announced the details regarding the spin-off of its real estate division Hammer Retex
(HR). The fairness opinion yielded a total value of CHF 138 mn, in line with VontE
CHF 139 mn. However, as IC will sell a 45% stake in HR first in order to cross-subsidize
its ailing paper business, shareholders will only be eligible for the remaining 55%,
which will be distributed as a dividend in kind (pending AGM approval). We advise
investors to accept the offer as the price is fair (15% premium over NAV). However, we
still fail to identify any triggers for Cham Paper Group (CPG) and therefore advise
against an investment in IC shares. On a stand alone basis (excl. HR), IC would trade at
4.3x EV/EBITDA 09E and therefore offers little upside in the current difficult market
environment. We reiterate our Hold rating with a PT of CHF 200.
Changes to our estimates: As the distribution of the dividend in kind (Hammer Retex
shares) is still pending AGM approval (24 April), we have only included the sale of the
45% stake in HR in our estimates. Hence, reported EPS 09E will increase 38% (CHF 8 mn
realized gain on the holding level), but we have lowered our adj. EPS 09E, 10E, and 11E
by 43%, 33% and 14%, respectively, due to significantly higher minorities.
Challenging times ahead: Without HR's reliable earnings contribution, CPG will face a
very challenging FY09. Admittedly, lower pulp and paper chemical prices should soften
some of the pressure on margins, but lower raw material prices also increases the appeal
of competing products (e.g. plastics vs. paper in flexible packaging) and the industry has
still not yet aligned capacities to demand.
PERFORMANCE
550
550
500
500
450
450
400
400
350
350
300
300
250
250
200
200
150
150
2006 2007
INDUSTRIEHOLDING CHAM
2008 2009
HIGH 500.91 20/4/07,LOW 165.00 27/2/09,LAST 195.00 20/3/09 Source: DATASTREAM
PER SHARE DATA
Price target (CHF) 200.00
Price INDN.S on 23-03-09 CHF 200.00
No. of shares INDN.S in '000 693
Market cap. INDN.S (CHF mns) 139
Other market cap. (CHF mns) 0
Total market capitalization (CHF mns) 139
Free Float % 75
Buru Holding (voting 20%) 20
Bestinver Gestion (voting 10%) 10
Golden Peaks Capital (voting 8%) 8
Average daily trading volume (12 months) 854
SHARE VALUATION
CHF 2007 2008 2009E 2010E
EPS 26.9 -27.2 23.3 16.7
EPS growth % NM NM NM -29
P/E 7.4 NM 8.6 12.0
CEPS 26.9 -27.2 23.3 16.7
P/CE 7.4 NM 8.6 12.0
Dividend 0.00 0.54 0.00 0.00
Dividend yield % 0.0 0.3 0.0 0.0
Book value 435 391 411 426
Price/Book 0.5 0.5 0.5 0.5
EV/EBITDA 3.9 6.8 4.8 4.7
HIGH 12-MONTH LOW
421.73 152.00
EXCESS PERFORMANCE
SPIX 1 SMLCPSW 2
3M -0.6% 2.5%
6M -5.8% 3.1%
12M -5.0% 2.4%
1
SPI ex Div.
2
Vontobel Small Caps Index
BREAKDOWN
Sales 2008
by sector CHF mns Change Share
- Paper Speciality 412.6 -8% 96%
- Real Estate 19.2 -13% 4%
by region
- Europe 365.3 -7% 85%
- America 24.6 -30% 6%
- Asia 23.7 -12% 5%
- RoW 18.2 2% 4%
Total 431.7 -8% 100%
KEY DATA
CHF mns 2008 2009E 2010E
Sales 432 325 327
EBIT 13.5 18.9 20.9
EBIT margin % 3.1 5.8 6.4
Shareholders' net profit -19.4 16.2 11.6
Return on equity % NM 5.7 3.9
Total assets 519 584 580
Equity 271 347 357
Equity ratio % 52.3 59.5 61.6
Interest-bearing debt 153 138 123
Cash 18.6 109 105
Operating cash flow -2.8 65.0 30.5
Capex -36.7 -21.0 -20.0
© 2009. The objectivity of this report may be compromised by existing or planned business relationships between the producer and the analysed company and potential
conflicts of interest arising thereof. Investors should therefore on no account use this report as the sole basis on which to make a decision. Please see the end of the
document for more details on potential conflicts of interest and disclaimer information.

Industriehold. Cham
Hold
Switzerland/Packaging/Paper 24-03-09
Shareholders get 55%, CPG gets 45%
The spin-off of Hammer Retex has finally come true (assuming AGM approval).
The deal consists of 3 separate transactions:
Cash inflow of CHF 62 mn is badly
needed
Shareholders will receive 1 unquoted
HR share per IC share
Offer price of CHF 109.45 is fair
1) Sale of 45% stake
In a first step, IC sold a 45% stake to Ludama Holding (consisting of Seewarte
Holding AG and HR chairman Fritz Jörg). This provides IC with a cash inflow of
CHF 62 mn and significantly strengthens the company's balance sheet. The
cash was badly needed as the Italian profit centre of CPG was already in breach
of at least one of its covenants. The sale will result in a realized gain of CHF 8
mn on the holding level. The company negotiated a favourable tax treatment
and will therefore pay no more than CHF 0.5 mn in taxes on the gain.
2) Distribution of a dividend in kind (HR shares)
Pending AGM approval, IC shareholders will receive a dividend in kind in the
form of HR shares. Each IC share is eligible for 1 HR share. The HR shares will
be unquoted and shareholders will hence not be able to trade them on an
exchange. Shareholders will receive the HR shares on 9 June 2009.
3) Public tender offer
Ludaman Holding will make a public tender offer for the 55% of HR shares
which will be distributed to shareholders. The offer price will be CHF 109.45
per share which amounts to a 15% premium over NAV. We had assumed a
price of CHF 178 per share but did not factor in the additional shares sold to
Ludama. Adjusted for the larger number of shares, we arrive at CHF 98 per
share or CHF 112.6 incl. a 15% premium. We therefore deem the offer price to
be fair. The offer period will be 6 April to 6 May 2009, with settlement
expected on 10 June 2009.
Given the current valuation of Swiss real estate companies, the 15% premium
to NAV seems fair. Only Intershop and Warteck have P/NAV 09E ratios >1.0x.
SWISS REAL ESATE VALUATION
Swiss Real Estate Perf. Price/NAV
NAV
NAV growth Market cap
Price YTD 08 09E 10E 08 09E 10E 08 09E 10E CHF mns
Allreal 108 0.9% 0.98x 0.97x 0.96x 110.3 111.4 112.6 -0.1% 1.0% 1.1% 1,225
BFW Liegenschaften 17.5 3.2% 0.56x 0.55x 0.56x 31.0 31.6 24.3 -3.3% 2.1% -23.3% 78
Intershop Holding 275 -3.5% 1.11x 1.10x 1.07x 246.9 250.5 257.6 3.8% 1.5% 2.8% 578
Mobimo 139 -1.8% 0.75x 0.75x 0.75x 185.1 185.2 185.3 1.8% 0.1% 0.0% 604
PSP Swiss Property 46.0 -12.8% 0.74x 0.72x 0.71x 62.5 63.6 64.9 4.6% 1.8% 2.1% 1,951
Swiss Prime Site 47.5 -6.6% 0.81x 0.81x 0.81x 58.7 58.6 58.3 2.0% -0.1% -0.4% 1,097
Warteck Invest 1480 0.3% 1.08x 1.08x 1.08x 1,310 1,307 1,308 -0.1% -0.2% 0.1% 209
Züblin 3.77 -17.7% 0.32x 0.31x 0.30x 11.7 12.3 12.4 2.0% 5.8% 0.8% 166
Average -2.4% 0.78x 0.77x 0.76x 1.3% 1.5% -2.1% 771
Max 16.0% 1.11x 1.10x 1.08x 4.6% 5.8% 2.8% 1,951
Min -17.7% 0.32x 0.31x 0.30x -3.3% -0.2% -23.3% 78
Median -1.8% 0.75x 0.75x 0.75x 1.9% 1.2% 0.4% 604
Source: Vontobel Equity Research
2 Vontobel Research

Industriehold. Cham
Hold
Switzerland/Packaging/Paper 24-03-09
NEW OWNERSHIP STRUCTURE OF HAMMER RETEX
Shareholders
100%
IC Cham
0-55%
100%
55%
Cham Paper
Group
0%
Hammer Retex
45%
45-100%
Ludama Holding
Current share holdings
Changes if spin-off approved
Source: IC Cham, Vontobel Equity Research
SCHEDULE OF THE SPIN-OFF
Date
Event
6 April 2009 Start of the offer period
6 April 2009 Start of trading of IC shares with tendered HR shares on 2 nd trading line
24 April 2009 AGM
6 May 2009 End of the offer period
12 May 2009 Publication of final interim result
13 May 2009 Start of the additional acceptance period
27 May 2009 End of the additional acceptance period
2 June 2009 Publication of the definitive final result
3 June 2009 End trading of IC shares with tendered HR shares on 2 nd trading line
9 June 2009 IC shares trade without HR shares
9 June 2009 New name: Industrieholding Cham changes to Cham Paper Group
Holding
10 June 2009 Settlement date
Source: IC Cham, Vontobel Equity Research
Only minor impact on income tax
Withholding tax compensated by
cash dividend
Differing tax implications of
accepting the offer
Tax implications for investors
For shareholders the spin-off has virtually no impact on income and capital gain
taxes. Only the par value increase of CHF 1.0 per share which shareholders
receive is subject to income tax at federal as well as on several cantonal levels
(for Swiss private investors).
The increase in par value due to the issued HR shares is subject to 35%
withholding tax. While Swiss residents can reclaim the withholding tax, for
foreign investors this depends on the respective double tax treaties (if
existent).
IC will pay a cash dividend of CHF 0.538 per share directly to the tax
authorities, which equals the withholding tax deductions from the dividend in
kind as well as the cash dividend.
Unlike for legal entities (like corporations), accepting the tender offer for the
HR shares will have no capital gains tax implications for private investors. For
legal entities, capital gains taxes apply.
3 Vontobel Research

1.
3.
2.
4.
Industriehold. Cham
Hold
Switzerland/Packaging/Paper 24-03-09
Uncertain future for CPG
IC now a focused niche player in
coated specialty paper
Pulp and paper chemicals prices have
eased…
The spin-off of HR will allow management to entirely focus on its core specialty
paper business going forward. The divestment of the ailing Norwegian profit
centre Hunsfos in late 2008 left CPG with its (still) profitable Swiss profit centre
(Cham) and the struggling Italian profit centre (Carmignano and Condino). The
company now acts as a niche player entirely focused on coated specialty
papers.
But market conditions remain extraordinarily difficult for FY09. Admittedly, on
the one hand the easing of pulp and paper chemicals prices should soften the
pressure on margins and the end of the de-stocking, which has had a negative
impact on the anyway lower demand over the past months, may finally draw
nearer. On the other hand, however, energy prices are set to remain high and
the company will feel the impact of the depreciated EUR.
PULP AND PAPER CHEMICAL PRICE INDICES
310
260
210
160
110
60
1993 1995 1997 1999 2001 2003 2005 2007 2009
ISPI Pulp Price Index Pulp and Paper Chemicals Index
Source: Bloomberg, Vontobel Equity Research
EMU ELECTRICITY CPI INDEX
140
130
120
110
100
90
80
2002 2003 2004 2005 2006 2007 2008 2009
Source: Bloomberg, Vontobel Equity Research
… but so have costs of substitutes!
Demand should nevertheless remain subdued for the foreseeable future and
despite various plant closures across Europe, overcapacities continue to loom.
Furthermore, the massive decline in oil prices will sharpen the competitive edge
of plastics vs. paper in the flexible packaging market. Similarly, aluminium
prices below USD 2,000/t favour cheaper but more material intensive
production technologies for inner liners (16% of annual revenues) vs. the more
efficient, but also more costly vacuum metalizing technology used by CPG. The
increasing consolidation of converters should also increase pricing pressure
from the customers.
WTI CRUDE, USD/BBL
170
150
130
110
90
70
50
30
2006 2007 2008 2009
Source: Bloomberg, Vontobel Equity Research
HIGH GRADE ALUMINIUM, USD/T
3,500
3,000
2,500
2,000
1,500
1,000
2001 2002 2003 2004 2005 2006 2007 2008 2009
Source: Bloomberg, Vontobel Equity Research
EBIT margin target unlikely to be met
anytime soon
All in all, IC is well positioned in a few attractive niches in the specialty papers
market. But even though CPG is moving in the right direction, we believe it will
4 Vontobel Research

Industriehold. Cham
Hold
Switzerland/Packaging/Paper 24-03-09
take time before the company will be able to achieve its EBIT margin target of
5-12% (over the cycle). While the cash inflow from the sale of the 45% stake
in HR has strengthened the company's balance sheet, the Italian profit centre is
already in breach of covenants. As a consequence, CHF 23 mn of long term
debt had to be reclassified as short term debt, even though management is
confident that the bank syndicate in Italy will not force the immediate
repayment of the debt.
We include the sale of the 45% stake
in HR in our estimates
Changes to our estimates
As the distribution of the dividend in kind (Hammer Retex shares) is still
pending AGM approval (24 April), we have only included the sale of the 45%
stake in HR in our estimates. Hence, reported EPS 09E increased 38%
(CHF 8 mn realized gain on the holding level), but have we lowered our adj.
EPS 09E, 10E, and 11E by 43%, 33% and 14% respectively due to significantly
higher minorities.
CHANGES TO OUR ESTIMATES
In CHF mn
New Vontobel Estimates Old Vontobel Estimates
% Change
2009E 2010E 2011E 2009E 2010E 2011E 2009E 2010E 2011E
Revenues 320.1 322.4 324.0 320.1 322.4 324.0 +0% +0% +0%
EBITDA 40.4 42.0 38.1 40.4 42.0 38.1 +0% +0% +0%
EBIT 18.9 20.9 17.2 18.9 20.9 17.2 +0% +0% +0%
EPS Reported 23.3 16.7 15.4 16.9 22.4 17.8 +38% -26% -14%
EPS Adjusted 6.7 11.6 15.4 11.8 17.4 17.8 -43% -33% -14%
Source: Vontobel Equity Research
Conclusion & Valuation
We advise accepting the offer
The spin-off of Hammer Retex will finally come true. The cross-subsidy to the
paper business by the sale of a 45% stake is somewhat unfortunate for
investors, but the terms of the takeover offer for the remaining 55% stake in
HR are fair. We therefore advise investors to accept the offer and tender the
HR shares which they will receive as a dividend in kind.
Hold, PT: CHF 200
Once the HR shares have been distributed to shareholders, IC shares will fall
approx. by the offer price or CHF 109.45 per share. Excluding HR, the paper
business is currently valued at 4.3x EV/EBITDA 09E (assuming net debt of
CHF 60 mn and EBITDA of CHF 30 mn). Hence, we believe the current share
price offers no upside and advise against an investment as we fail to identify
any catalysts for the shares once investors have cashed in on their HR shares.
We therefore maintain our Hold rating with a PT of CHF 200 per share.
INTERNATIONAL PEER GROUP
20/03/2009 P/E 09 P/E 10
Ev/EBITDA
09
Ev/EBITDA
10
Ev/EBITDA
09
Ev/EBITDA
10
Stora Enso Oyj 23.4 x 15.7 x 5.7 x 5.3 x 0.4 x 0.4 x
UPM Kymmene Oyj 18.1 x 9.5 x 5.7 x 5.1 x 0.4 x 0.4 x
M Real n.m. n.m. 12.4 x 8.1 x 0.1 x 0.1 x
International Paper 44.4 x 12.2 x 5.6 x 4.9 x 0.6 x 0.6 x
Sappi n.m. 8.9 x 6.7 x 4.9 x 0.4 x 0.4 x
Holmen Ab 13.6 x 13.6 x 6.9 x 6.9 x 0.8 x 0.8 x
Ahlstrom Oyj 33.5 x 15.5 x 6.5 x 5.8 x 0.5 x 0.5 x
Paper Industry Average 26.6 x 12.6 x 7.1 x 5.9 x 0.5 x 0.5 x
Source: Vontobel Equity Research
5 Vontobel Research

Industriehold. Cham
Hold
Switzerland/Packaging/Paper 24-03-09
CONSOLIDATED FINANCIAL DATA (CHF MNS)
2004 2005 2006 2007 2008 2009E 2010E 2011E
SALES 441 426 455 471 432 325 327 324
- change (%) -58 -3 7 3 -8 -25 1 -1
EBITDA 62 48 42 56 40 40 42 38
- as % of sales 14.1 11.2 9.2 12.0 9.3 12.4 12.8 11.8
INTANGIBLES AMORTIZATION -1.9 -2.2 -2.8 -2.2 -1.8 -1.1 -0.7 -0.7
DEPRECIATION -31.4 -26.4 -25.8 -26.7 -25.0 -20.3 -20.4 -20.2
- as % of sales 7.1 6.2 5.7 5.7 5.8 6.2 6.2 6.2
- as % of avg.cap.exp./5-y -83 -79 -92 -102 -89 -74 -75 -73
OPERATING PROFIT 28.9 19.1 13.3 27.5 13.5 18.9 20.9 17.2
- change (%) -44 -34 -31 107 -51 41 10 -18
- as % of sales 6.6 4.5 2.9 5.8 3.1 5.8 6.4 5.3
FINANCIAL RESULT -7.6 2.9 -2.3 -6.3 -12.5 -6.5 -4.5 -3.8
NON-RECURRING ITEMS -0.2 0.0 -26.8 0.0 -19.9 8.0 0.0 0.0
PRETAX PROFIT 21.1 22.0 -15.8 21.2 -18.9 20.4 16.4 13.4
- change (%) -41 4 -172 -234 -189 -208 -20 -18
- as % of sales 4.8 5.2 -3.5 4.5 -4.4 6.3 5.0 4.1
TAXES -9.2 -4.4 4.5 -1.4 -0.5 -1.0 -1.4 -1.1
- tax rate (%) 44 20 28 7 -2 5 8 8
GROUP NET PROFIT 11.9 17.5 -11.4 19.7 -19.4 19.4 15.0 12.3
- change (%) -37 48 -165 -274 -198 -200 -22 -18
- as % of sales 2.7 4.1 -2.5 4.2 -4.5 6.0 4.6 3.8
MINORITY INTERESTS 0.0 0.0 0.0 0.0 0.0 -3.2 -3.5 -1.6
SHAREHOLDERS' NET PROFIT 11.9 17.5 -11.4 19.7 -19.4 16.2 11.6 10.7
- change (%) -7 48 -165 -274 -198 -183 -29 -8
- as % of sales 2.7 4.1 -2.5 4.2 -4.5 5.0 3.5 3.3
- as % of equity 4.1 5.4 -3.8 6.2 -7.1 5.7 3.9 3.5
CASH FLOW FROM OPERATING ACTIVITIES 24.0 31.0 28.6 31.5 -2.8 65.0 30.5 32.8
- change (%) -59 29 -8 10 -109 -2382 -53 7
- as % of sales 5.4 7.3 6.3 6.7 -0.7 20.0 9.3 10.1
CAPITAL EXPENDITURE -24.3 -20.9 -35.5 -23.9 -36.7 -21.0 -20.0 -37.0
- 5-year average -37.6 -33.3 -27.9 -26.3 -28.2 -27.6 -27.4 -27.7
DATA PER REGISTERED (CHF, ADJ)
EARNINGS 15.6 24.0 -15.5 26.9 -27.2 23.3 16.7 15.4
- change (%) -1 53 -165 274 -201 186 -29 -8
CASH EARNINGS 13.0 10.8 17.4 18.5 -3.7 6.7 11.6 15.4
- change (%) 14 -17 61 7 -120 -280 73 33
DIVIDEND 5.0 5.0 0.0 0.0 0.5 0.0 0.0 0.0
- payout ratio (%) 32 21 0 0 -2 0 0 0
CASH FLOW FROM OPERATING ACTIVITIES 32 42 39 43 -4 94 44 47
BOOK VALUE 403 442 410 435 391 411 426 444
TOTAL ASSETS 562 595 583 593 519 584 580 577
CASH 25.0 50.2 58.0 57.4 18.6 109.2 104.7 85.5
INTEREST-BEARING DEBT 144 143 136 138 153 138 123 108
NET DEBT 119 93 78 81 134 28 18 22
- as % of group equity 41 29 26 25 49 8 5 6
EQUITY SHAREHOLDER 293 325 301 319 271 285 295 308
GROUP EQUITY 293 325 301 319 271 347 357 370
- as % of total assets 52 55 52 54 52 59 62 64
NO. OF REGISTERED (MNS) 0.760 0.731 0.734 0.733 0.713 0.693 0.693 0.693
Source: Vontobel Equity Research
6 Vontobel Research

5.
Disclaimer & Disclosures
Vontobel Research
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3. Research rating history The Ratings and / or Rating Outlook of the analysed companies were last changed as follows:
Industriehold. Cham was last changed from Reduce to Hold on 19-12-2008
4. Global rating distribution Share of VT IB clients
VT Research universe VT Research universe in rating category
No. As % As %
Buy 48 29% 27%
Hold 103 61% 25%
Reduce 17 10% 35%
The table above is revised at the beginning of each quarter, i.e. it currently reflects the status as at 31
December 2008.
5. Methodology / Rating system Bank Vontobel’s financial analysts apply a variety of valuation methodologies (e.g. DCF and EVA modelling,
'sum-of-the-parts', break-up and event-related analysis, peer group and market multiple comparisons) to
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into consideration an assessment of the company in its entirety and of the sector to which it belongs
("bottom-up approach"). Price target calculation is based on a number of factors, observations and
assumptions, including but not limited to: key business performance indicators and ratios, public and private
valuation multiples, comparison with one or more peer groups of comparable companies, overall equity
market valuations, and with the company's own history and track record.
The stock recommendations published by Vontobel’s research team are defined as follows:
Rating
Large Cap
Buy
Hold
Reduce
Mid & small cap
Buy
Hold
Reduce
Definition
SLI Index (inc. tolerance) / non-Swiss stocks of similar market capitalisation
Price target (when set) implies 10% or more upside on a 12-month horizon
Price target (when set) implies 0-10% upside on a 12-month horizon
Price target (when set) implies downside on a 12-month horizon
Other Swiss stocks / non-Swiss stocks of similar market capitalisation
Price target (when set) implies 15% or more upside on a 12-month horizon
Price target (when set) implies 0-15% upside on a 12-month horizon
Price target (when set) downside on a 12-month horizon
Analysts are required to review their recommendations under the following conditions:
Buy: When upside to price target falls below 5% (all caps).
Hold: When upside to price target reaches or exceeds 15% for large caps or 20% for mid & small cap;
when downside to price target reaches or exceeds 5% (all caps).
Reduce: When upside to price target reaches or exceeds 5% (all caps).
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market or specific stock price volatility

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