Poor second half year due to economic crisis
Key figures continuing operations:
• Turnover € 53.3 million (- 11%)
• Operating result including reorganization costs € 0.6 million negative (2007/2008: € 3.0 million positive)
• Reorganization costs € 0.9 million
• One-off tax benefit € 0.7 million
• Net result € 0.6 million negative (2007/2008: € 1.4 million positive)
• Loss per share € 0.72 (2007/2008: € 1.57 earnings per share)
Decreasing turnover
The global economic crisis had a significant impact on Holland Colours as well. The turnover decreased by 11% to € 53.3 million. Without currency effects the decrease would be 9%. By contrast, the previous fiscal
year was still marked by a 5% growth. The turnover in the focus markets Building & Construction, Packaging, and Silicones & Elastomers showed a combined decrease of 11%. The underlying decrease – without currency effects - was 9% (2007/2008: a 4% growth).
Also Europe, which was faced with a 13% decrease in turnover, was affected by the crises on the financial and housing markets that spread from America. In 2007/2008 the turnover in this region still showed a 7% increase, thanks to positive developments within the Building & Construction market. The decline in Europe took place entirely during the second half year. In the Americas division the turnover decreased by 15%, mainly as a result of the persistently poor conditions in the North American housing market. Only Asia
showed a 10% growth for the entire year, primarily thanks to a strong first half year.
In the Building & Construction market the turnover decreased by 13% due to a poor second half year; in the first half year the decline in this market was limited to only 1%. This downswing was caused primarily by the
developments within Europe.
The turnover in the Packaging market decreased by 10%, mainly because of a loss of turnover in the Eastern European beer market. Due to the poor conditions in the markets for Building & Construction and
Automotive, the competition within the Packaging market is noticeably on the increase.
Relative to the other focus markets, Silicones & Elastomers performed better thanks to the growth in Asia.
Although this market is also affected by the recession, the decrease in turnover was limited to 6% whereas there was a loss in volume of 13%. The difference can be explained by increased sales prices.
From the summer of 2008 onwards, the results of Holland Colours were put under pressure by the quickly deteriorating economic situation. The net result was € 0.6 million negative, compared with € 1.4 million positive in 2007/2008. The loss occurred in the second half year, which showed a 22% lower turnover than
the same period last year due to disappointing incoming orders. The operating result for the entire fiscal year, excluding special costs related to the reorganization, was € 0.3 million. By contrast, last year an
operating result of € 3.0 million was realized. During the second half year various measures were taken to bring the expenses in line with the lower level of activity. The effects of these measures will become visible in the coming fiscal year.

Reorganization
When it became clear that the recession would last longer, Holland Colours decided in March 2009 to decrease the number of jobs by 60. Unfortunately, it turned out that this could not be achieved without forced dismissals. The company’s facilities in the Netherlands, Hungary, the United Kingdom and the United States were affected by the reorganization. Following a careful procedure the restructuring has now been completed and the employees concerned have left their jobs. The once-only expenses for this reorganization were € 0.9 million and were accounted for as exceptional costs in the fiscal year 2008/2009.
This mainly concerns costs related to severance packages. As a result of this reorganization the personnel costs were lowered by approximately € 1.8 million annually. These savings will become effective starting in the new fiscal year.

Gross margin maintained
In the fiscal year 2008/2009, the gross margin remained with 46.8% at an approximately equal level compared to last year (46.9%) During the first half year the gross margin decreased. The availability of raw materials was under pressure and purchase prices rose quickly. As a consequence of the economic
depression, the second half of the year showed a different picture. The purchase prices of raw materials stabilized and partly thanks to that the gross margin recovered. However, part of the improvement can also
be explained by the shift in product mix in the second half year; after all, the focus market of Building & Construction was hit harder by the economic crisis than the Packaging market. Moreover, the improvement program Lean continues to contribute to an improvement of the gross margin.

Lower operating expenses and the Lean improvement program
The decrease in incoming orders due to the economic crisis was reason to further increase the focus on cost management. Under the Lean improvement program projects had been initiated already that have led
to lower maintenance costs and less waste production, amongst other things. In addition to this, all other costs were also thoroughly scrutinized. The lower activity level also contributed to the decrease in costs.
The total operating expenses decreased by € 1.1 million, or almost 5%, to € 24.3 million.

One-off tax benefit
In the fiscal year 2008/2009 we obtained certainty with regard to a claim against the Dutch Revenue Services as a result of the complete judicial liquidation of the company in Brazil some years ago. The oneoff
benefit resulting from this amounts to € 0.7 million and is included in the income tax expenses for 2008/2009.

Cash flow and financing
In the year under review the working capital decreased by € 2.6 million, from € 12.3 million to € 9.7 million.
This decrease can be explained almost in its entirety by the reduction in inventories of € 2.4 million. At the basis of this decrease are the lower level of activity and the efforts within the framework of the Lean
improvement program. Despite the decrease there were more raw materials in stock than necessary on the balance sheet date due to long-term purchasing obligations that could no longer be postponed. During the
coming months these inventories will be used up and the stock of raw materials will return to a normal level.
The remaining difference of € 0.2 million can be explained by the fact that there was a sharper decline in trade and other receivables than in trade and other payables. The sustained loss and the one-off tax benefit
originating from the closure of the company in Brazil a few years back, have resulted in a tax claim that largely can be effectuated in the coming fiscal year. On the other hand a reserve was created for the reorganization costs that, for the major part, will lead to payments at the beginning of the new fiscal year.
Mainly as a result of the negative net result, the cash flow (net profit plus depreciation) fell 38% from € 4.0 million to € 2.5 million. The operating cash flow increased from € 2.3 million in 2007/2008 to € 5.7 million in
2008/2009. This was primarily due to the decrease in working capital.
For its financing, Holland Colours makes use of credit facilities in the Netherlands, the United States and, to a limited degree, Indonesia. In the United States and Indonesia securities were given in the form of
mortgage rights on buildings and in the United States also on equipment. Both in the Netherlands and in the United States some covenants apply. As a result of the disappointing results Holland Colours does not meet
the some of the agreed-upon covenants at the end of the fiscal year. This means that the loans formally have become repayable at call and they are therefore presented as current liabilities. It is expected that in
consultation with external financiers agreement will be reached upon a redefinition of the starting points on which the financing is based, inclusive of the securities that have to be given within this framework. The
major lenders have shown their faith in the outcome of the negotiations by issuing a waiver on the current financing. Expectations are that the continuation of the financing is thus safeguarded. The new agreements
will lead to higher financing costs in the coming fiscal year. On the basis of several calculated scenarios Holland Colours does not foresee additional credit needs.
Partly thanks to positive translation results of € 0.7 million (2007/2008: € 2.2 million negative) and a lower invested capital (or balance-sheet total) the company’s solvency ratio rose to 46.1% (2007/2008: 44.2%)
and thus came to fall within the target bandwidth. The translation results are a consequence of the levels of shareholders’ equity at subsidiary companies reporting in foreign currencies.

The strategy
Holland Colours continues the strategic course that was taken. Since the growth in the focus markets is under pressure due to the overall economic recession, achieving the corporate goals will shift in time as the
recession continues. This reduces the probability that the targeted ROI of 15% can be met as of the fiscal year 2010/2011. Meanwhile presence at customers, cost control and liquidity management will receive strongly increased attention.

Dividend proposal
The net result per share is € 0.72 negative, compared with € 0.92 positive in the previous year. On the basis of the dividend policy it will be proposed to the General Meeting of Shareholders to pass this year's dividend.

Prospects for the year 2009/2010
In 2009/2010 Holland Colours will operate within a difficult economic climate. The main uncertainties concern the developments in the financial and housing markets, and the poor performance of the world economy. Holland Colours keeps a sharp eye on measures to manage its risks and to keep costs in line
with the new reality.
For now Holland Colours assumes that the slump in the housing markets will continue, as a result of which the turnover in Building & Construction will decrease in both Europe and the United States.
In Packaging, Holland Colours expects an increase in turnover, due especially to the success of Holcomer UHT and a recovery of the market position within Europe.
In Silicones & Elastomers, a decline is expected. This market is related to Building & Construction and therefore also experiences negative effects from the adverse developments in the housing markets.
Operational efficiency campaigns will continue unabated, whereby the development in turnover will be closely monitored. In view of the current economic conditions, Holland Colours pays extra attention to the control of
debtors and other working capital positions.
After the reorganization in April 2009 the number of employees is approximately 380. It is expected that this number will not change significantly in the coming year.
The investments will be well below the level of depreciation and are expected to be financed entirely from the cash flow.
Because of the uncertain circumstances, Holland Colours will not make any predictions regarding the expected turnover and result for 2009/2010. However, for the first half year of 2009/2010 we do expect a lower turnover than for the first half year of 2008/2009.

The annual report will be published on Thursday June 18, 2009.
The General Meeting of Shareholders will be held on July 6, 2009 at 1.30 p.m. at the company’s offices.