Pfleiderer continues on profitable growth path in the first nine months of 2007

Neumarkt, November 7, 2007 – MDAX-listed Pfleiderer AG (ISIN DE0006764749) remained on its profitable growth path in the third quarter. Consolidated revenues rose 28.7% in total to €1,340.9 million (€1,041.5 million) in the first nine months of 2007 due to the excellent performance in Western and Eastern Europe. The leading international manufacturer of engineered wood products increased its international share of consolidated revenues from 67.2% to 70.6%. Pergo AB, Stockholm, which was acquired in the first quarter, has been included in the consolidated financial statements since March.

“Pfleiderer has continued on its profitable growth path in the third quarter of 2007. We have significantly expanded our business, especially in Western and Eastern Europe. This growth has more than offset the effects of the Company’s weaker North American business. We are therefore well on track to reach our targets for the year and to report another set of record results,” said Pfleiderer AG’s CEO Hans H. Overdiek, commenting on the Group’s business development.

Significant improvement in results of operations The strong volume development coupled with Pfleiderer’s proactive pricing policy had a positive effect on the Company’s results of operations, as did the effects of the efficiency enhancement measures already implemented. Earnings before interest, taxes, depreciation, and amortization (EBITDA) improved significantly by 27.4% to €183.9 million (€144.3 million) in the first nine months, and the EBITDA margin amounted to 13.7% (13.9%). This strong earnings growth was recorded despite the ongoing difficult market conditions in North America and one-time costs for restructuring measures amounting to €9.7 million. Normalized EBITDA (i.e. adjusted for one-time costs) climbed 33.5% to €192.6 million, resulting in an EBITDA margin of 14.4%. Profit from operations (EBIT) increased in the first three quarters by 15.3% to €102.7 million (€89.1 million). The slightly slower growth compared to EBITDA is attributable to Pergo’s increased selling expenses in the U.S.A., which were used for additional marketing measures there.

Earnings before tax from continuing operations increased by 26.6% to €68.5 million (€54.1 million) after adjustment for net financial expenses, which at €34.1 million were roughly on a par with the previous year’s level (€34.8 million) for the first nine months. The figure after taxes was €48.1 million (€38.2 million). Earnings per share from continuing operations improved from €0.52 to €0.57, while the average number of shares outstanding increased to 52.8 million as against 49.7 million in the previous year.

Excellent financial strength and solid balance sheet structure Cash flow from operating activities also rose sharply in the first three quarters of 2007 by 56.8% to €109.9 million (€70.1 million), underscoring the Pfleiderer Group’s financial strength. The Group’s total assets increased by 40.0% as against the end of 2006 to €1,922.2 million (€1,372.7 million). This substantial increase is primarily due to the initial consolidation of Pergo AB. A hybrid bond in the amount of €275 million was placed in April 2007 to finance this acquisition. As a result of its structure, this bond is treated as a component of equity in accordance with International Financial Reporting Standards (IFRSs); as a result, equity increased from €542.3 million to €773.1 million. This restored the equity ratio to 40.2% (2006: 37.0%) after it had temporarily declined to 29.1% at the end of March following the acquisition of Pergo. Net debt amounted to €676.6 million on September 30, 2007, as against €787.3 million on March 31. Gearing (the ratio of net debt to equity) fell from 1.44 to 0.88.

Continuing growth path in Western Europe Pfleiderer maintained its high pace of growth in the Western Europe region. Segment revenues climbed by 29.1 % in the first nine months of 2007 as against the comparable prior-year period to €741.9 million (€574.8 million). Pfleiderer met or even exceeded its forecast sales volumes in key product areas. Pergo’s European business activities also fully met expectations, contributing €76.8 million to revenues. Pfleiderer’s encouraging business development underlines its strong market position, which has been expanded further in the course of the year. This was also reflected in EBITDA, which rose faster than revenues, climbing 61.0% to €115.9 million (€72.0 million). The EBITDA margin amounted to 15.6% as against 12.5% in the previous year.

Growth strategy in Eastern Europe fully on schedule Strong sales growth continued in Eastern Europe. Revenues in the Eastern Europe region increased in the first three quarters by 35.8% to €280.7 million (€206.7 million). Pfleiderer is systematically expanding its internal capacity to leverage the major expansion opportunities that Eastern Europe offers. In mid-2007, its state-of-the-art plant for medium-density fiberboard (MDF) started shift operations in Grajewo, Poland. A particleboard plant in Novgorod, Russia, was inaugurated at the end of 2006. Due to strong demand, Pfleiderer started to expand particleboard and melamine surfacing capacity at this plant during the third quarter, leading to roughly four weeks of downtime and to additional one-time costs. In addition, ramp-up costs were incurred for the new Polish MDF production facility. As a result, the EBITDA margin fell slightly from 19.7% to 18.3%, although EBITDA increased by 26.0% to €51.3 million (€40.7 million) in absolute terms.

Challenging market environment in North America – Integration of Pergo progressing rapidly The slump in consumer spending in North America, which has also impacted sales of laminate flooring and engineered wood products, continued, with Pfleiderer being hit by this challenging environment. Nevertheless, including Pergo’s activities since March, a higher business volume of €334.3 million was recorded in the first nine months of 2007 as against the previous year (€273.5 million). Pfleiderer has significantly strengthened its strategic position in North America with the Pergo takeover. Despite difficult conditions in the industry, the Company stabilized sales, thus increasing its share of the North American laminate flooring market from an initial 15% to 20%.

In addition to strengthening the Company’s strategic position, the Pergo integration is creating substantial synergies that will lead to savings in excess of €25 million in 2008 and of approximately €30 million in 2009. Implementation of the related restructuring program will lead to one-time expenses totaling approximately €20 million in 2007, €5 million less than previously forecasted. Since some of these costs were incurred in the third quarter, reinforcing the impact on earnings of the weak market environment, cumulative EBITDA declined from €41.3 million to €22.9 million. This corresponded to a margin of 6.9%, as against 15.1% in the previous year. However, a double-digit earnings margin was again recorded in North America in the core particleboard business area.

“We are not satisfied with the earnings situation in North America for the third quarter. However, we shall have absorbed all the negative effects by the end of the year and shall then be, with Uniboard and Pergo, the market-leading integrated manufacturer of particleboard and laminate flooring in North America from a cost perspective as well. Thanks to this outstanding competitive situation, we will record a significantly improved EBT in 2008,” said Hans H. Overdiek, commenting on the integration of Pergo in North America and the significant synergy potential of €25 million in 2008 alone.

Outlook for 2007 and 2008 The Pfleiderer’s Group strong growth will continue in the last quarter of the current year and in the coming fiscal year. Pfleiderer will continue to benefit from the ongoing positive development of the sector in Europe in the coming months. The Company expects to increase revenues in Western Europe – excluding Pergo – by a total of approximately 14% to €890 million for full-year 2007. Pfleiderer is forecasting a revenue contribution of a good €115 million from Pergo’s European activities in the period from March to December 2007. In Eastern Europe, it is predicting 33% growth in the business volume to approximately €400 million. This growth will more than offset the effects of the Company’s weaker North American business. As a result, consolidated revenues for 2007 should increase to approximately €1.9 billion (€1.4 billion) as forecasted. Earnings will also improve: Pfleiderer is forecasting Group EBITDA of between €240 million and €250 million, compared with €208.1 million in the previous year. Thus Pfleiderer will report a further improvement in its results in 2007, despite the negative effects mentioned earlier.

For 2008, the Company is expecting its positive sales growth in Western and Eastern Europe to continue and its North American business to stabilize. Consolidated revenues are forecast to increase to over €2.0 billion. In addition to economies of scale offered by the higher business volume, the structural measures in North America and the investment program in Western Europe will also have a positive effect. Against this backdrop, Pfleiderer is expecting the consolidated EBITDA margin to improve to over 15% in the coming year.

Further information:

Pfleiderer AG, Neumarkt
Corporate Communication/
Investor Relations
Gala Conrad
Ingolstädter Straße 51
D-92318 Neumarkt
Phone.: +49 (0) 9181 / 28-8491
Fax: +49 (0) 9181 / 28-606
eMail: gala.conrad@pfleiderer.com

Back