The Pfleiderer Group reported that it profited in the second quarter of 2011 from the implemented restructuring of its operating activities and significantly increased both revenue and operating profit in Europe.
In the interim report published today on the first half of 2011, the available-for-sale North American business is presented for the first time separately as discontinued operations, in line with the provisions of IFRS; the corresponding prior-year figures have been adjusted for comparability.
It is also intended that the figures presented in the Half-Year Report do not yet reflect the effects of the financial restructuring of the Pfleiderer Group, which calls for a massive debt reduction and extensive capital actions, as those actions have not yet been completed.
Group revenue of continuing operations in the second quarter amounted to 293.0 million euros, which is 6.0 percent higher than the 276.5 million euros achieved in the prior-year quarter. Revenue in the first half of 2011 amounted to 595.3 million euros, representing an increase of 9.4 percent compared with the prior-year period (543.9 million euros). Once again, the growth driver was the significant improvement of business in Eastern Europe.
Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA), in which the extraordinary operational restructuring costs have been eliminated, increased in the second quarter by 44.0 percent from 20.0 million euros to 28.8 million euros. EBITDA including operational restructuring costs increased by 5.5 percent in the second quarter from 19.8 million euros to 20.9 million euros.
First-half EBITDA rose by 38.3 percent from 39.1 million euros to 54.1 million euros. Including restructuring costs, EBITDA improved by 14.8 percent to 44.2 million euros (H1 2010: 38.5 million euros).
Pfleiderer once again posted a loss for the period of 74.9 million euros for the first half of this year, compared with 18.9 million euros for the first half of last year. The loss primarily reflects a financial expense of 65.6 million euros, because the debt reduction of more than 700 million euros agreed upon this year but not yet implemented and the resulting lower interest charge are not yet included in the interim financial statements. Assuming that the actions for financial restructuring had already been implemented, the Group's result of continuing operations before taxes would break even for the first half of the year.
Western Europe profits from capacity adjustments
The Western Europe region posted a decrease in second-quarter revenue of only 2.0 percent from 202.1 million euros to 198.1 million euros, despite the closure of three plants in Germany, which was implemented as planned. The EBIT margin almost doubled, however, from 1.7 percent to 3.3 percent (EBIT in relation to revenue). As a result of plant closures in Ebersdorf, Gschwend and Nidda, excess production capacity in Germany was largely eliminated; this was the basis for the significant increase in prices compared with the prior-year period. Excluding one-time effects, the EBIT margin was actually 6.4 percent.
In terms of its products, Pfleiderer faced a decline in demand for raw panels with the exception of home-improvement stores. Unit sales of surface-finished panels increased, however, especially in the furniture industry. The successful implementation of a new sales strategy focusing on the expansion of the product range in the medium price segment resulted in volume growth for laminate flooring of approximately 4 percent in Europe.
Eastern Europe as a growth driver
Second-quarter revenue generated in the Eastern Europe region grew by 28.6 percent to 99.8 million euros compared to 77.6 million euros in the prior-year quarter. The EBIT margin continued to improve from 4.4 percent to 5.5 percent. Increases in raw-material costs, in some cases quite substantial, were more than offset by volume growth and higher prices. Wood prices for example increased by almost one third.
Eastern Europe was thus the growth region in the second quarter, accounting for 33.5 percent of the revenue of continuing operations and further increasing its importance for the Pfleiderer Group.
The North American business, which is available for sale and presented as discontinued operations, recorded a revenue decrease in the second quarter of 13.4 percent compared with the prior-year period from 104.9 million euros to 90.8 million euros.
Exchange-rate effects were mainly responsible for the decrease, reducing revenue by 22.8 million euros. Overall, demand in the North American market was higher than in 2009 but weaker than in 2010 following the discontinuation of subsidies in the area of real estate. Another factor was that the competitive environment became more difficult due to imports of laminate flooring from Asia, although Pfleiderer is deliberately withdrawing from this low-price segment. Second-quarter EBIT fell from minus 0.2 million euros to minus 1.6 million euros.
The number of persons employed by the Group (including North America) decreased from 5,579 at June 30, 2010 to 5,177 at June 30, 2011, which is a reduction of 402 persons or 7.2 percent. In Western Europe, the workforce shrank due to plant closures by 9.2 percent to 2,393. In Eastern Europe, the workforce expanded slightly by 0.6 percent to 1,587. In North America, the number of persons employed fell by 13.0 percent to 1,094. Compared with the end of 2010 (5,373), the Group's workforce contracted by 196 persons.
The ongoing development of the Pfleiderer Group depends to a large degree on the implementation of the operational and financial restructuring concept that has been decided upon. The approvals of far-reaching capital changes granted by the creditors' meeting in June and by the extraordinary shareholders' meeting in July were important milestones in this respect.
Some shareholders and creditors have taken legal action against those resolutions. At first instance, the Frankfurt District Court has rejected Pfleiderer's application for release relating to the resolutions passed at the creditors' meeting. The company will appeal against that ruling. Following a thorough examination of the lawsuits, the Executive Board is confident that it will receive the required court release. Right from the start, Pfleiderer's planning allowed for the possibility of legal action going through several instances, so the restructuring remains on schedule, according to the company.
With regard to business operations, on the basis of the course of business so far in the second half of 2011, the Executive Board anticipates the continuation of the upward trend shown in the first six months of the year. Total revenue of continuing operations in full-year 2011 should grow by a medium-to-high single-digit percentage due to the market recovery and despite the plant closures that have been carried out. The Eastern Europe region will probably achieve double-digit growth rates, while Western Europe is likely to remain fairly flat due to the capacity adjustments.
The result of operations for full-year 2011 will depend on whether and to what extent the financial restructuring is depicted in the financial statements. Assuming that the financial restructuring is fully implemented, a net profit is to be expected for the continuing operations already this year.
In the year 2012, Pfleiderer anticipates further revenue growth for its continuing operations, unless the current economic situation worsens substantially, due for example to an exacerbating sovereign-debt crisis.
Pfleiderer posts profit in Q2
November 9, 2011