The Pfleiderer Group was affected in the third quarter of 2008 by the cooling down of the global economy. Nevertheless, despite the deteriorating market environment, the MDAX company, ISIN DE0006764749, has asserted itself well. Thus the cumulated consolidated revenues have increased after three quarters of 2008 by 1.0% to €1,353.3 million (9M/2007: €1,340.9 million). The drivers for this growth were, firstly, the take-over of Pergo, which was only included in the comparable period last year for revenue purposes for seven months, and, secondly, the plant acquired as of August 1, 2008 in Moncure/USA. Furthermore, the new MDF plant in Grajewo/Poland and productivity gains contributed to the growth. This was countered by the closure of the plant in La Baie/Canada, whereby the revenues decreased by €30.7 million despite some of these customers being served through the plant in Mont Laurier/Canada. Shifts in the exchange rate cost Pfleiderer some four million euros in revenues in the reporting period.
“The crisis on the financial markets clearly left its mark on the global economy in the third quarter, and the outlook is not very uplifting. For this reason we will temporarily put back our growth plans in favor of strict cost and risk management to be implemented in all areas and regions. Pfleiderer AG is – as one of the leading companies with a view to costs and technology, and also due to its solid financial structure – excellently positioned to tackle the challenges in the coming months. I see a good opportunity for us to further set ourselves apart from our competitors in a positive sense and gain a leading edge. We also emerged from the last economic crisis a much stronger company,” commented Hans H. Overdiek, CEO of Pfleiderer AG, on the current business development.
EBITDA at €180 million at virtually same level as last year
Due to the above-average rise in the costs of raw materials the EBITDA fell slightly in a year-on-year comparison, from €183.9 million to €179.7 million. The EBIT in the first three quarters of 2008 saw charges amounting to €9.8 million due to higher depreciation as a result of the capacity expansion and the anticipated expenses for the relocation of the La Baie plant. The EBIT therefore decreased from €102.7 million to €87.4 million. The financial result deteriorated slightly from €-34.1 million to €-36.2 million. The result from continuing operations before taxes, amounting to €51.0 million, was taxed at a rate of 36.2% in the first three quarters, compared to 29.8% in the previous year. This increase has essentially been caused by the discontinuation of some of the loss carry forwards as a consequence of the increase in the stake held by the major shareholder One Equity Partners, to 26.9%, in the third quarter. After the dividend payments due to other shareholders and to the hybrid bondholder, earnings after taxes of €16.5 million (9M/2007: €29.2 million) were available to the Pfleiderer shareholders. This leads to earnings per share (diluted) of 32 euro cents compared to 57 euro cents in the previous year.
Segments with differing business developments Economic downturn also felt in Western Europe in third quarter
The revenues in the Western Europe region rose in the first nine months of the year by 1.0% to € 749.4 million. As Pergo was only consolidated with effect from March 1, 2007, the increase in revenues after nine months is based on the additional contribution to revenues by Flooring Europe in the first two months of the year. In the course of the year we noted increasing price pressure on raw particleboard and HDF/MDF boards, resulting from the weak demand for flooring. The prices for HPL and coated boards were able to assert themselves, in contrast. The cooling down of the economy was also increasingly felt in this region from the third quarter onwards, with the effect that the revenues for the quarter in Western Europe decreased by some €17.0 million to €233.4 million.
Thanks to continuous production optimization and rationalization as part of the program “Future BC West” the cost situation again improved. In a year-on-year comparison the EBITDA saw an above-average increase of 9.0% to €126.3 million. Thus, the EBITDA margin improved in the first three quarters of the year, from 15.6% to 16.9%. In the third quarter, however, it decreased slightly, from 16.5% to 16.0%.
Eastern Europe with strong growth in revenues
In the first nine months of 2008 the market situation in Eastern Europe changed significantly compared to that of the previous year. While revenues continued to grow in Russia – with higher margins than in the previous year – demand from customers in Poland suffered due to the strong zloty. Production by the Polish furniture industry, which is heavily dependent on exports, decreased in the first nine months of 2008 by ca. 15.0% over the previous year. Due to rising capacities in the region the prices for particleboard and MDF boards also came under pressure. Despite this adverse development, it was still possible to increase year-on-year revenues in the region by 13.5% to €318.6 million. This has been aided by the new MDF plant in Grajewo, exchange rates, and the enhanced capacities for coated and non-coated particleboard in Russia. Because of Delays in the construction of the new MDF/HDF plant in Novgorod, Pfleiderer AG is exercising interruption clauses specified in its contracts with machinery suppliers. The delays are attributable to the lead construction contractor and amount to approx. six months. This was announced last Wednesday.
The EBITDA for the period decreased in a year-on-year comparison from €51.3 million to €43.1 million. This corresponds to a downturn in the EBITDA margin from 18.3% to 13.5%. Above all, major rises in raw materials costs and declining product prices in Poland have put the margin under pressure. An extensive cost-cutting program of €27.0 million has been initiated to counter cost and price pressure.
New facility in North America
The consequences of the US real estate crisis have again had a clearly negative impact on business in the North America region in the first nine months of 2008. The revenues declined in a year-on-year comparison by 7.0% to €311.2 million. The downturn in revenues results, on the one hand, from loss of revenues totaling €30.7 million due to the closure of the La Baie plant, as the plant in Mont Laurier was only able to compensate in part for this loss of revenue, and, on the other hand, from exchange rate effects totaling €26.4 million. The new facility in Moncure, which was purchased as of August 1, 2008, contributed €5.0 million to revenues. Pergo made an additional contribution to revenues of €18.4 million in 2008.
Due to the very limited leeway for price increases for the products, on the one hand, and to high rises in costs, on the other hand, the income situation in the North America region continues to be unsatisfactory. To a large degree, substantial cost savings have only covered the most recent increases in the prices of raw materials. At €21.1 million the EBITDA virtually reached the level seen in the same period last year (€22.9 million). This included a negative sum of €1.5 million in restructuring costs for the relocation of the La Baie plant, as well as positive income of €5.4 million through the booking of badwill from the acquisition of the plant in Moncure.
Following the relocation of the La Baie plant – which will be associated with investments totaling some €80.0 million – Pfleiderer AG expects that production can commence at the new site in North Carolina in the third quarter of 2009. The location will have significant cost benefits due to wood prices now only being about half as high, thanks to considerably lower transport costs, and to integrated manufacturing of particleboard and MDF boards; it will clearly increase the profitability of the North America region. The exact date for the production launch will, however, be dependent on the market situation in North America.
Solid capital resources and balance sheet structure
Pfleiderer AG has a solid financial base and balance sheet structure, which was further improved in 2008 through, among other things, the issue of a Schuldschein of €165.0 million at favorable conditions. With the expansion of the plant in Russia and the acquisition of the plant in Moncure/USA the balance sheet total as of September 30, 2008 rose over the end of 2007 by 5.0% to €2,017.5 million. In view of the crisis on the financial markets, on the liabilities side of the balance sheet the short-term debt was reduced in favor of long-term financing, and thus reliable financing was secured at extremely favorable conditions for the coming years. The net debt rose over December 31, 2007 by €83.6 million to €701.8 million. The gearing was thus a solid 91%. Given the slight decrease in the equity capital, due to the dividend payment and the balance sheet extension the equity capital ratio decreased from 41.7% to 38.3%. Due to the slight decrease in earnings the operating cash flow was €167.3 million, and thus €7.2 million lower than that for the comparable period in the previous year. The cash flow from operations, however, increased from €109.9 million to €142.9 million.
For the final quarter of 2008, and also for next year, the company assumes that there will not be an improvement in the market as a whole, but that in parts the market will suffer further downturns. Against this background Pfleiderer AG has decided to temporarily put back the growth target in favor of strict cost management to be implemented in all areas and regions. Thus, in the current fiscal year the planned investments will be reexamined and amended where necessary. A major contribution to cost reductions is expected from the further production optimization measures. The costs situation will also be positively impacted by the lower costs for raw materials; this decrease has already been observed in some areas. In view of the difficulty of assessing the overall economic situation, serious forecasts are currently associated with great uncertainty. Pfleiderer AG assumes that the revenues in the fiscal year now ending will exceed those seen last year and that the result will be within the 2007 target corridor. |
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