Small Talk: Fiberweb cleans up its balance sheet

The hygiene unit sale will rid Fiberweb of its debt burden, which was £145m in October

Deals are often billed as transformational, though just as often they are anything but. And Fiberweb's agreement to offload a sizeable chunk of its business more than qualifies for the tag. The company makes hi-tech materials, or non-woven fabrics, used in every thing from filters to babies' nappies. Or at least it did. Nappies fall within Fiberweb's hygiene arm, where margins are lower compared to the industrial business. And though large (hygiene accounted for about 40 per cent of last year's turnover) the division doesn't boast the same long-term growth prospects.

This is why the Fiberweb, headquartered in Richmond, Surrey, has decided to sell the unit to Petropar of Brazil in a £179m deal announced this month. The disposal, which needs to be approved by shareholders and is expected to close by the end of the year, does not simply transform the company's trading activities. It also paves the way for a transformation of Fiberweb's balance sheet.

The hygiene sell-off will rid the company of its debt burden – net debt stood at £145m at the end of October – allowing it to invest in higher-margin industrial products. Without the hygiene arm, the remaining industrial business would have reported sales of about £270m last year.

"Following the sale, in the medium term, the company is aiming to produce [margins on earnings before interest and tax] of 8 to 10 per cent ... return on capitalemployed of over 15 per cent, and sustained growth rates around double the rate of growth in GDP," Fiberweb said when it unveiled the deal on 11 November. The stock market has certainly reacted well, with the company's shares up by nearly 30 per cent since the news of the disposal was made public. In the City, Numis said the deal "materially alters" the firm's risk profile. "The disposal will fundamentally change the structure of Fiberweb, moving the group from an over-indebted position to net cash and enabling the group to focus on the industrial division," Numis analyst Chris Millington said.

Over at Panmure Gordon, Mr Millington's counterparts highlighted the prospect for yet more deals, now that Fiberweb is set to shed its debt. "There remains the possibility for further consolidation... and, with net cash and ongoing backstop facilities of £50m in place, Fiberweb should be more responsive than most to market opportunities," Panmure said.

CNE completes biogas plant construction

The Alternative InvestmentMarket-listed engineering firm China New Energy (CNE), which services the biofuels, edible ethanol and chemical industries, is set to announce an update on its biogas contract with the Dongguan Xin'ao Gas Company (DXG). CNE had been contracted todesign and build a biogas recovery and purifying plant at a beerbrewery; this morning it will tell investors that the plant has now been successfully completed.

Even better, CNE is now working on a similar facility for China-based Kingway Beer. This deal is structured along the same lines as the one with DXG, with CNE putting up the money for building the Kingway plant.

In return, it will take a slice of the revenue generated from the biogas sales. The company is also in talks about striking a similar deal with a state-owned bioethanol company in China's Guangxi province.

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