Pfleiderer significantly increases revenue and earnings again in 2007

Neumarkt, April 3, 2008 – Fiscal year 2007 was the most successful year in the history of Pfleiderer AG (ISIN DE0006764749) despite a challenging environment. Consolidated revenue was up by 27% to €1,801 million. EBITDA – earnings before interest, taxes, depreciation, and amortization – climbed by 20% to €248.7 million. With an EBITDA margin of 13.8%, profitability remained high, although one-time charges of €21.6 million in particular from the Pergo integration and restructuring weighed on performance. Despite the worsening economic environment, consolidated revenue is expected to rise to €2 billion with a target EBITDA margin of 15% in 2008.

“We generated very respectable increases in revenue and earnings in 2007 despite all the difficulties surrounding our business in North America, and Pfleiderer looks set for continued profitable growth in 2008. We have made the necessary preparations to facilitate ongoing growth in all segments despite the worsening economic situation in 2008,” said Pfleiderer AG’s CEO, Hans H. Overdiek.

Good revenue and earnings track record since 2004

Over the past four years, Pfleiderer has reported average annual revenue growth of 33%. Increased profitability is reflected in the above-average earnings growth of 48% per annum. In this period, it successfully implemented the takeovers of Kunz and Pergo, in addition to achieving significant organic growth. As a result, Pfleiderer is now one of the top three providers in the global engineered wood industry and has actively driven forward industry consolidation, without losing its focus on a solid balance sheet structure and strong operating business with sustained high cash flows.

Foundations laid for further profitable growth in 2007

Pfleiderer laid the foundations for further profitable growth in fiscal year 2007. Organic growth amounted to 11% and the portfolio expansion due to the acquisition of Pergo boosted revenue by another 16%. Consolidated revenue would have been even higher if there had been no negative currency translation effects. Profitability increased further despite sharp increases in raw material and energy prices. The gross margin improved from 26.8% to 27.3%, while the personnel expenses ratio decreased from 16.9% to 14.8%. Both of these contributed to Pfleiderer’s strong EBITDA performance of €248.7 million – at the top end of its target range of €240 million to €250 million.

Depreciation, amortization and impairments increased due to the acquisitions from €75.2 million to €111.9 million, causing EBIT to rise by only 3% to €136.8 million (previous year: €133.0 million). The Pergo transaction led to net financial expenses of €46.0 million, compared with €40.3 million in 2006. Pre-tax earnings from continuing operations therefore fell to €90.6 million (previous year: €92.4 million). Profit after tax increased by 19% to €79.7 million, thanks to a significant reduction in the effective tax rate to 12%. Earnings per share remained unchanged at €1.00, while the number of shares increased to 52.3 million (previous year: 50.3 million).

Excellent financial strength for additional expansion

Pfleiderer has a solid balance sheet structure, which is reflected in its equity ratio of 41.7% (previous year: 39.5%) and its virtually unchanged gearing ratio of 0.8. The Company also has around €1.3 billion in unused bank credit lines, giving it adequate room to exploit opportunities to selectively expand its corporate portfolio. Capital expenditure of €183 million required to expand and maintain the Company’s operating business was offset in 2007 by the sharp increase in cash flow to €198 million (previous year: €111 million). Pleiderer invested a total of €392 million in acquisitions in the year under review (€306 million for Pergo and €86 million for Prospan in Poland). This was accompanied by an increase in net debt to €618.2 million (previous year: €414.6 million).

Record returns for Western Europe region

Pfleiderer’s EBITDA margin in the Western Europe region improved from 13.3% to 16.3% in 2007, reflecting the strong demand for high-margin products on the one hand and increased cost efficiency at all locations on the other. This figure would have been even higher without one-time expenses of €7.1 million due to rationalization measures. Overall, the Western Europe segment recorded a 55% increase in EBITDA to more than €160.7 million. Segment revenue in 2007 increased sharply by 26% to €986.7 million. The Company’s organic growth and the first-time consolidation of Pergo’s activities in Europe contributed in equal measures to this development.

Eastern Europe region significantly outperforms sector growth

The attractiveness of Pfleiderer’s investments in the Eastern Europe region is reflected in the growth rates there in 2007. Revenue increased by 31% (to €393 million), almost four times the 8% sector growth for the region. This success is based on strong organic growth, the commissioning of new capacities, and the purchase of the remaining shares in Prospan. The segment’s EBITDA jumped by 37% to €77.6 million (previous year: €56.5 million) despite the ramp-up costs for the new plants in Poland and Russia recognized in 2007. The EBITDA margin grew from 18.8% to 19.7%.

Preparatory work performed in North America

The Company’s North American business was clearly impacted in 2007 by the difficult conditions for business triggered by the subprime crisis. The weak U.S. dollar also hit exports from Canada to the U.S.A. Nonetheless, Pfleiderer gained market share due to its acquisition of Pergo and as a result of competitors exiting the market. The Company made the necessary preparations in 2007 for continued growth in North America in 2008. In addition to strengthening its strategic position, the Pergo integration is creating synergies that will lead to savings of €30 million. The necessary restructuring required in this context led to one-time expenses of approximately €14.5 million in 2007. The effects of the weak market environment were also felt, reducing sales in the flooring business area in particular. All in all, the segment thus recorded EBITDA of €16.6 million, as against €52.5 million in the previous year. Revenue increased from €349.6 million to €443.0 million.

Confident despite worsening economic environment in 2008

Pfleiderer is confident for fiscal year 2008 despite the worsening economic environment. Consolidated revenue is expected to continue to rise year on year due to positive growth in the regions. The Group forecasts slight top-line growth in Europe due to the continued strength of the engineered wood markets and the introduction of product innovations. The full-year consolidation of the plants in Poland (Grajewo) and Russia (Novgorod) and the expansion of capacities there will have a positive impact on earnings power in fiscal year 2008. The Group is also expecting to increase its market share in North America significantly once again as a result of market consolidation. Thanks to a sharp rise in new orders, this will be reflected as early as the first quarter with an increase in revenue in North America. However, the overall market in North America will remain challenging in 2008 due to economic uncertainty and the weak U.S. dollar.

Pfleiderer expects its EBITDA to increase in 2008 despite the difficult global environment. It aims for a consolidated EBITDA margin of 15%. In addition to revenue growth, the improved cost base in all segments is expected to contribute to this upward trend. The Group expects margins to improve in Western Europe due to its “Future BC West” rationalization program. Pfleiderer also anticipates synergy effects of around €30 million in North America due to the rationalization measures it has already implemented there. The cost basis in the Eastern European region is also expected to improve by €15 million.

The Group expects to be able to pass on most of the impact of increases in raw materials and energy prices. Margins in Eastern Europe are likely to develop at a moderate rate in the short term, due to a growth slowdown in Poland plus increased market capacities and the appreciation of the zloty at the beginning of the year. However, strong growth in Russia will offset this development somewhat.

Planned capital expenditure of around €200 million will be financed from the cash flow in 2008. Pfleiderer is open to further acquisitions to complement its portfolio, but will only make them on the basis of the Group’s stable earnings position.

Summary of key figures for fiscal year 2007

(in accordance with IFRSs)

€ million Jan.1 to Dec. 31, 2007 Jan.1 to Dec.31, 2006 Change in %
Revenues 1,801.1 1,415.3 +27.3
*of which Western Europe 986.7 781.5 +26.3
*of which Eastern Europe 393.3 300.3 +31.0
*of which North America 443.0 349.6 +26.7
Gross margin (%) 27.3 26.8 -
EBITDA 248.7 208.1 +19.5
*of which Western Europe 160.7 103.6 +55.1
*of which Eastern Europe 77.6 56.5 +37.3
*of which North America 16.6 52.5 -68.4
Return on sales (%) 13.8 14.7 -
EBIT 136.8 133.0 +2.9
EBT from continuing operations 90.6 92.4 -1.9
Profit for the period 84.6 101.0 -16.2
Basic earnings per share from continuing operations (€) 1.00 1.00 0
€ million Dec. 31, 2007 Dec. 31, 2006
Total assets 1,921.3 1,372.7
Equity 801.0 542.3
Equity ratio (%) 41.7 39.5
Net debt 618.2 414.6
Capital Expenditure 182.6 110.4
Cash flow from operating activities 198.0 111.4
—- —- —-
Number of employees attributable to continuing operations (excluding trainees) 5,849 5,207
*of whom in Germany 2,545 2,567
*of whom outside Germany 3,304 2,640

For further information:

PFLEIDERER AG, Neumarkt
Gala Conrad
Vice President Corporate Communciations/Investor Relations
Tel.: + 49 (0)9181 / 28 - 8491
Fax: + 49 (0)9181 / 28 - 606
E-Mail: gala.conrad@pfleiderer.com

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