Pfleiderer lifts revenues in H1/2008 – earnings impacted by increase in raw material prices, selective price pressure, and one-time expenses relating to plant relocation

• - Consolidated revenues up by 3.5% to €916.9 million
• - EBITDA on a level with previous year at €119.5 million
• - Earnings quality in Western and Eastern Europe improved in Q2, North American environment remains difficult
• - 2008 targets adjusted due to difficult operating environment

Neumarkt, August 11, 2008 – MDAX-listed Pfleiderer AG, ISIN DE0006764749, increased consolidated revenues by 3.5% in the first half of 2008 to €916.9 million (H1/2007: €886.0 million). Western and Eastern Europe were the growth drivers, while North America recorded a decline due in particular to the plant closure in La Baie, Canada, and to exchange rates. These two effects reduced the Group’s revenues by a total of €33.5 million. Overall, the international share of revenues in the Pfleiderer Group increased from 70.4% to 71.9%.

“The Pfleiderer Group, too, was not immune to the increasingly difficult economic environment and the impact of the weak US dollar. However, we are already reaping the benefits of the extensive measures to enhance efficiency that we have initiated, for example in Eastern Europe. We are methodically taking the necessary action and are convinced that we can emerge strengthened from this difficult market phase,” said Pfleiderer AG’s CEO Hans H. Overdiek, commenting on the Company’s current business performance.

Group return on sales remains a good 13.0%

At €119.5 million, consolidated earnings before interest, taxes, depreciation, and amortization (EBITDA) almost matched the previous year’s level (H1/2007: €121.0 million). The EBITDA margin remained a good 13.0% (prior-year period: 13.7%). Earnings were affected by rising raw material prices and limited scope for price adjustments in some cases. In addition, EBIT reflects expenses of €9.8 million relating to the closure of the MDF plant in La Baie, Canada. Exchange rates also had a negative effect of €1.5 million. As a result, EBIT only reached €54.8 million as against €70.5 million in the previous year.

Net financial expenses amounted to €31.8 million in the first six months of 2008, compared with €22.5 million in the prior-year period. This was primarily due to the mark to market of foreign currency positions and currency forwards (totaling €-5.6 million) and interest rate hedges (€-2.4 million). Pre-tax earnings from continuing operations fell from €48.1 million to €22.9 million in the period under review. After the profit attributable to minority interests and hybrid capital investors, the amount attributable to Pfleiderer shareholders was €5.3 million. This resulted in earnings per share of €0.10 compared with €0.43 in the prior-year period. Excluding the La Baie plant relocation, earnings per share would have been €0.24.

Mixed segment performance – strong earnings growth in Western Europe despite difficult environment

Revenues in Western Europe improved by 5% to €516.0 million despite an environment that is becoming tougher. Part of this growth relates to the initial inclusion of the laminate flooring manufacturer Pergo – which was acquired as of March 1, 2007 – in the entire six-month period. In the course of the reporting period it became difficult to adjust prices for raw particleboard and MDF boards. However, prices of laminated products were selectively increased. The Group further improved its cost situation due to continuous optimization of production. As a result, EBITDA increased by 19.5% to €89.0 million, while the EBITDA margin rose by two percentage points to 17.2%.

The economic slowdown in Europe will further restrict the Group’s ability to raise prices. Nevertheless, Pfleiderer AG expects extremely stable earnings for the rest of the year in Western Europe due to its product range, the continuous optimization of production, and lean cost management.

Earnings quality improves significantly in Eastern Europe in Q2

Half-yearly revenues in Eastern Europe increased by 11.2% to €206.0 million. This was mainly attributable to the new MDF plant in Grajewo, exchange rate effects, and excellent particleboard sales in Russia. However, business was again impacted by weak demand from customers in Poland and the strong Zloty. Prices for particleboard and MDF boards have come under pressure due to increased capacity in the region. This factor, coupled with the sharp rise in the cost of raw materials, led to a year-on-year decline in the region’s EBITDA from €34.3 million to €28.2 million. The EBITDA margin was therefore 13.7% as against 18.5% in the previous year. In the second quarter, however, the region’s EBITDA margin improved by 2.2 percentage points compared with Q2/2007 due to the cost-cutting program initiated in the first quarter.

Pfleiderer AG continues to expect fierce competition in Poland during the remaining months of the year, and will counter this situation by taking additional cost-cutting measures. However, demand in Russia is likely to remain healthy. At the same time, the company will further increase margin quality here due to a greater proportion of higher-quality products. The commissioning of Pfleiderer’s third laminating press in Russia in August 2008 will also contribute to this.

Market share increases in North America despite weak environment

The financial market crisis affected Pfleiderer’s business in North America, with revenues in the region down by 4.8% in the first half of the year to €210.4 million. On the one hand, the weak dollar accounted for a decline of €22.3 million, and on the other the closure of the La Baie plant led to lost revenues of €19.9 million. However, Pfleiderer’s subsidiary Pergo made a positive contribution. Without the effects of La Baie and Pergo, local currency revenues would have been up by 5.5%. Efforts in the region led to a substantial increase in market share in all areas. Earnings in the North America business are currently unsatisfactory. Although the cost-cutting measures initiated in 2007 were successfully implemented, they could not fully offset rising raw material prices and selling prices that are declining in some cases. EBITDA therefore fell from €16.3 million to €10.0 million. This includes restructuring costs of €1.5 million for the La Baie plant relocation. At EBIT level, the relocation entailed a further €8.3 million in depreciation and amortization of noncurrent assets.

Pfleiderer AG is responding to the difficult market situation in North America by relocating its La Baie plant to the new production site at Moncure in North Carolina (U.S.A.). The Company aims to become the cost leader in the region due to substantially reduced wood prices, significantly lower transportation costs, and integrated particleboard and HDF production. This will considerably increase profitability in North America. The launch of the new HDF production line is scheduled for the third quarter of 2009. This capacity will therefore be available in time for the market turnaround that is generally forecast for the end of H2/2009.

Balance sheet structure dominated by new corporate bond

Total assets rose by 6.1% to €2,037.8 million due to the issue of a corporate bond totaling €165.0 million. The placement of the corporate bond enables the company to optimize the structure of its financial liabilities by extending their maturity. For technical closing date reasons, however, the corporate bond was only partially used to replace current financial liabilities. Net debt increased by €56.3 million to €674.5 million. Gearing (ratio of debt to equity) was 87.3% as of June 30, 2008, compared with 77.2% at the end of 2007. Equity fell slightly due to dividend payments; following the increase in total assets, this was reflected in a decrease in the equity ratio from 41.7% in the previous year to 37.9%. This trend will reverse in the next quarter since the cash provided by the corporate bond will be used to further reduce debt, and total assets will therefore decline.

Pfleiderer AG revises 2008 targets

Pfleiderer AG believes that the consequences of the ongoing financial market crisis for the real economy could impact its business in the second half of 2008. At present, Pfleiderer AG therefore sees only limited opportunities to immediately pass on cost increases for raw materials to the necessary extent. In 2008, the Company’s operating business will not fully achieve the €2 billion revenue target and 15% EBITDA margin target set in the previous year. Pfleiderer AG currently expects revenues of €1.8 to €1.9 billion. From today’s perspective, however, it expects to exceed its 2007 EBITDA.

Key figures for the Pfleiderer Group as of June 30, 2008

Contact persons:

PFLEIDERER AG, Neumarkt
Fabian Schiffer
Vice President Corporate Communciation
Tel.: + 49 (0)9181 / 28 - 8491
Fax: + 49 (0)9181 / 28 - 606
E-Mail: fabian.schiffer@pfleiderer.com

PFLEIDERER AG, Neumarkt
Lothar Sindel
Vice President Investor Relations
Tel.: + 49 (0)9181 - 28-8491
Fax: + 49 (0)9181 - 28-606
E-Mail: lothar.sindel@pfleiderer.com

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